According to Yonhap News,

(SEOUL/SEJONG=Yonhap News) South Korea will focus on fueling economic recovery momentum in 2016 and strive to push forward meaningful reforms as it moves past a disappointing year full of difficult challenges, the government said Wednesday.

In its 2016 economic directives, the finance ministry made clear it will push forward policies that can prop up growth in the short term and improve the overall competitiveness of Asia's fourth largest economy down the line.

It said 2016 will also be the year that reform measures pursued in the past three years under President Park Geun-hye will start to bear fruit, and exert positive influence on the economy that has been rocked by unexpected problems.

Slower than expected gains in global trade has seriously hurt South Korean exports this year, while the Middle East Respiratory Syndrome (MERS) outbreak in late May crippled domestic consumption in the second quarter. The contagious respiratory disease killed 38 people and scared away tourists.

The country's outbound shipments contracted 7.4 percent in the 11 months of this year, compared to same period in 2014, with Seoul's overall growth predicted to move up 2.7 percent by year's end, down from 3.3 percent reached in the previous year and much lower than the 3.8 percent target set in December 2014.

Under the plan, every effort will be made to keep alive the pace of recovery that started in the third quarter when the gross domestic product (GDP) advanced 1.3 percent on-quarter, and the highest reading in five years.

"Everything will be done to achieve real GDP growth of more than 3 percent and nominal growth hovering around 5 percent," said Finance Minister Choi Kyung-hwan. "The government will take solid action to prevent slow growth from becoming the norm."

He said Seoul plans to manage both growth and inflation in the new year, shifting policy emphasis so ordinary people can feel positive change.

The official, who doubles as deputy prime minister in charge of economic affairs, added at a press conference in Seoul that the government will strive to revamp regulatory road blocks so as to encourage the private sector to invest in the economy and help prop up growth.

To achieve the goal, and to prevent consumer spending that has been the driving force behind growth in the second half from losing steam in the new year, the government will spend 125 trillion won (US$105.6 billion) of next year's 386.4 trillion won budget in the first quarter. It said 36 percent of state allotments that have to go to regional governments throughout the year will be sent to be used in the January-March period that can prop up the economy.

The government will, moreover, take steps to bolster domestic spending by holding regular discount events like Korea Grand Sale in the new year. Such promotional events, along with the temporary cutting of excise taxes for cars and large appliances, have been instrumental in reviving consumption in the past few months.

The ministry said in order to lure more tourists, who have become a source of big business for the local service sector, Seoul will revise tax refund policies that can improve the local shopping experience.

On the export front that is expected to weigh down growth by around 1 percent in 2015, top policymakers warned that conditions will not drastically improve next year, especially with China rapidly closing the gap with South Korea in key industries.

To deal with such developments, the government will set aside some 20 trillion won in financial support in the new year.

The ministry said that while South Korea in the past mainly paid attention to the size of exports, starting in 2016, the country will provide more "tailored made" assistance, to businesses that show clear signs of growth down the road. It said cosmetics, processed food, fashion and clothing and products for babies and little children, will get more support.

On structural reforms, the ministry in charge of formulating the country's economic policies, said 2016 will be the year South Korea completes its long-drawn drive for change that can raise its overall global competitiveness.

The government has been engaged in pushing forward change in the labor, financial public sectors, as well as calling for changes in the country's educational system that has taken flak for not producing people needed by businesses.

Labor reforms center on following through the agreement reached by the Tripartite committee made up of labor, management and government officials, who agreed to expand flexibility in the hiring and firing of workers. Financial and public sector reforms are focused on the creation of a so-called Internet banks, and more streamlining and reshuffling of state-controlled enterprises.

Other measures to be carried forward in the new year calls for the launching of special "regulation free zones" all across the country and helping local small and medium sized enterprises to set up operations abroad.

The free zones will be set up in every region outside the capital city area, which will make it easier for companies to engage in cutting edge industries without being held back by red tape.

The ministry said the zones can allow future growth industries such as self-driving cars, Internet of Things (IoT), titanium production, sensor technology, renewable energy, biotech, 3D printing and drones to grow in the country.

The zones are designed to get companies to invest, with the central government's role being limited to having lawmakers pass special laws giving waivers. Very little budget support will be allocated to these zones.

Related to deregulation, the economic initiative calls for some 100,000 hectares of land dedicated to farming to be used to build 50,000 rental homes. Construction companies tapped to build these homes will get tax breaks and financial assistance. The lifting of the country's green belt restrictions will be carried out as well.

On helping SMEs make inroads abroad, the goal is to get public companies such as Korea Land & Housing Corp. to create overseas industrial complexes in places like Vietnam and Indonesia that can reduce risk and create more business opportunities for local companies.

This plan can lead to a greater number of South Koreans finding work abroad and trigger demand for local capital goods.

On measures to stimulate business investment, the 2016 plan calls for 15 trillion won in the government business support funds to be injected into the economy early on in the year. The money can be used to build up technology in 5G communications and ultra high definition displays, as well as energy storage systems and smart grids.

On external developments, the government said it is keeping close watch on the possible fallout of U.S. interest rate hikes and slowdown in growth in China, South Korea's largest export market.

Sluggish growth in China bodes ill for South Korea, which relies heavily on trade to generate growth.

Besides such issues, the government pledged to keep household debt, which topped 1,160 trillion won in the third quarter, under control by getting local lenders to better regulate loans and compel people that borrowed money to pay back the principal in installments.

On the issue of inter-Korean relations, the 2016 plan advocates providing more humanitarian assistance and improve everyday living standards of North Koreans. It added support will be given to projects that can modernize North Korea's medical infrastructure and calls for engagement in various bilateral infrastructure and cultural projects that can strengthen ties and build trust.

yonngong@yna.co.kr

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Source: Yonhap News (Dec. 15, 2015)