Seoul tightens belt to fight inflation

Seoul tightens belt to fight inflation

SEOUL (AFP): South Korea will tighten its belt to fight a swelling current account deficit and inflation, finance and economy Minister Kang Kyong-Shik said yesterday.

In a joint media conference with other economic ministers, Kang urged South Koreans to tighten their belts to help hold down inflation, which has been running at more than four percent annually.

"The consumer price index growth of three percent in the 1980s came as a result of government retrenchment," he said, vowing to cut this year's government spending by about two trillion won (US$2.26 billion).

It was the first time that the South Korean government has opted for a retrenchment policy since 1984 when it froze the budget.

He said Seoul would put top priority on curbing inflation and reducing the snowballing current account deficit, even at the cost of lower economic growth.

Short-term measures aimed at stimulating the slowing economy would not only increase the current account deficit and add to inflationary pressure but also delay industrial restructuring programs, he said.

"The government will continue to make efforts to fundamentally revamp our industrial structure, while putting top priority on curbing inflation and reducing the current account deficit, even though that will mean low growth," Kang said.

He said this stability-first policy might lower economic growth to below the five percent level for this year, a figure in line with predictions by private think tanks.

The economy grew 7.1 percent last year.

Kang warned that the current account deficit would again rise above $20 billion in 1997 if government and private sectors failed to slash spending.