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South Korea mulling further tax cuts to prop up economy

SEOUL - South Korean President Lee Myung-Bak said on Sunday his administration planned further tax cuts and would expand government spending to prop up the ailing economy.

Lee summoned key advisers and ministers to a meeting Sunday where he urged them to stem the financial crunch spilling into Asia's fourth largest economy, his spokesman Lee Dong-Kwan said in a statement afterwards.

South Korea is already feeling the harsh impact of the global crisis, with its stock market Friday plummeting 10.6 percent amid massive foreign selling and growth hitting a four-year low in the third quarter.

‘The government's scheme to push for additional tax cuts and expand its fiscal spending must ensure that the financial crisis will not lead to a slump in the real economy,’ the president told the meeting.

‘Under the current circumstances, what views foreign investors take about our economy and market is more important than anything else.’

The president's office did not elaborate on more tax reductions or government spending. The finance ministry would not immediately comment.

Lee, who returned Saturday from a summit of Asian and European leaders in Beijing, used Sunday's meeting to try to ease concerns over foreign currency and stock markets, his office said.

He ordered the cabinet to explain more clearly government policies to foreign investors and work with the international community on follow-up measures to fight the global financial crisis.

Data from the Financial Supervisory Service on Sunday showed foreign investors were selling local stock here at a record rate.

The statistics, disclosed by Yonhap news agency, said investors sold a net 42.61 trillion won (29.59 billion dollars) worth of stocks this year, the highest volume since the 1992 opening of the local market.

Analysts say South Korea and other emerging markets are under pressure as investors scramble to reduce overseas exposure and secure liquidity to weather the global credit crisis.

Prime Minister Han Seung-Soo, Finance Minister Kang Man-Soo, central bank chief Lee Seong-Tae, financial services commission chairman Jun Kwang-Woo and senior presidential economic aide Bahk Byung-Won took part in the meeting.

‘Participants at the meeting agreed that the market interest rate should be further stabilized to avert a slump in the real economy and revitalize sluggish business conditions,’ Bahk said, hinting at a further rate cut.

The Bank of Korea cut its key interest rate by 25 basis points to 5.0 per cent early this month.

South Korea has bitter memories of being bailed out by the International Monetary Fund to avoid state bankruptcy during the 1997-1998 Asian financial meltdown.

Since the latest financial crisis unfolded, Seoul has announced sweeping measures to stabilise its stock markets.

The central bank said on Friday it was providing two trillion won to local securities houses and asset managers through repurchase agreement deals in an attempt to ease current difficulties.

A week ago, the government announced a 130-billion-dollar package -- most of it a 100-billion-dollar state guarantee on its banks' foreign debts -- aimed at allaying uncertainty.

The package included 30 billion dollars of state money for banks and a multi-billion dollar scheme to revive the construction industry.

President Lee plans to give a speech to parliament on Monday to ask for support for the government packages aimed at overcoming the financial crisis, presidential officials said.