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SEOUL: South Korean President Lee Myung-Bak Friday called for greater public spending to overcome an "unprecedented" economic crisis, as the worsening outlook saw another cut in interest rates.
"We should take unprecedented steps" because Asia's fourth largest economy is experiencing an "unprecedented" crisis, Lee told local government chiefs.
South Korea may miss this year's three percent economic growth target due to the global downturn, he said, adding that conditions could be worse than predicted.
"We have room to expand fiscal expenditure more aggressively" because the country's national debt is relatively low, Lee said.
Lee also said South Korea has room to lower its interest rates further since the base rate is still higher than that of other major economies.
The president's gloomy forecast came as the Bank of Korea (BOK) cut its key interest rate by 0.5 percentage points to 2.5 per cent in a move to bolster the slumping economy. It was the central bank's fifth cut in three months.
BOK governor Lee Seong-Tae said the economy had fallen into a rapid slump since the fourth quarter of last year.
GDP growth in the fourth quarter of last year contracted significantly from the previous quarter, he said, hinting that the central bank could cut the rate further.
The central bank said in a statement that the economy is slowing fast as domestic and overseas demand are weakening faster than expected.
"Downside risks to the economy are also great due to the continuing instability in the financial market," it said.
Financial authorities have created a 50-trillion-won (US$38 billion) fund to encourage lending in a bid to fortify the economy, but banks are reluctant to offer loans for fear of a possible credit crunch.
In his New Year policy address, President Lee said he would ease regulations, cut taxes and spend 60 per cent of the 2009 budget in the first half of the year.
He said the economy could shrink in the first half of 2008 for the first time since the 1997/98 Asian financial crisis.
- AFP/yb
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