South Korean Prime Minister Kim Min-seok issued a stern warning on Wednesday: the government’s preventive response system must be strengthened immediately as the conflict shows clear signs of dragging on, writes Bloomberg.
“As the situation is likely to drag on, it is necessary to further strengthen the preventive whole-of-government response system, including preparations for worst-case scenarios,” Kim said. – The government will act with maximum urgency commensurate with the gravity of the situation.”
Seoul is establishing an inter-ministerial emergency economic working group under the direct leadership of the prime minister to coordinate action. At the same time, a separate economic situation center is being set up in the presidential office.
South Korea imports about 70% of all crude oil it consumes from the Middle East. A prolonged supply shock threatens a domino effect for the entire industry, from a shortage of basic raw materials to rising production costs, falling exports and shrinking domestic demand.
Unprecedented measures
Realizing the scale of the threat, the authorities have already taken unprecedented measures. For the first time in nearly three decades, Seoul has imposed a fuel price ceiling in an attempt to curb inflationary pressures triggered by soaring global oil and gas prices.
Prime Minister Kim urged parliament to pass a supplementary budget as soon as possible, calling the move “not a choice but a necessity” to protect the national economy from external risks.
The government and the ruling party agreed on the parameters of an emergency package of about 25 trillion won ($16.7 billion). Crucially, these injections will be financed by exceeding the tax collection plan, not by issuing new government bonds. In this way, Seoul is trying to support the economy without provoking a rise in yields on the debt market.
The lion’s share of fiscal support is expected to be spent on mitigating the effects of rising energy tariffs, helping the vulnerable and stabilizing broken supply chains. President Lee Jae-myung has instructed his team to quickly prepare a detailed draft package.
South Korea’s economy is already suffering heavy losses in financial markets. The national currency collapsed nearly 4 percent in March alone. The benchmark Kospi stock index lost about 10% of its capitalization.
Most independent economists agree that government stimulus will provide only moderate support for economic growth, but at the same time it increases inflation risks in an already highly volatile global environment.
