The South Korean government will squeeze out more than 20 trillion won ($17 billion) from reserves to expedite the largest-ever quarterly fiscal spending in the first three months of 2017 to preempt worsening in domestic economic conditions and kick-start the economy ahead of downside risks on the external front.

The government previously has suggested to spend 30 percent of its 2017 budget of 400.7 trillion won in the first quarter and consider extra budget if necessary in the second half.

In the 2017 economic policy outline announced Thursday, the Ministry of Strategy and Finance reiterated expansionary fiscal policy while revising down the growth outlook for next year to 2.6 percent from 3.0 percent it forecast six months ago.

The momentum for recovery in domestic demand has weakened due to downsides from higher oil prices, greater interest burden on household debt, job insecurity from corporate restructuring, and reduced activity in the real estate market, the ministry said the outline.

On the external front, it feared ill effects from increased volatility in the international financial market from interest rate rises in the United States and risk of bubble burst in Chinese private-sector debt and housing market.

The government will bolster financing for the first quarter - 13 trillion won from the budget and 8 trillion won from policy funds - to create jobs and aid the economy. A quarter of public policy budget for state lenders would be precipitated in the first quarter.

It will up state funding for new industries and tax incentives for companies increasing hiring. Trade financing cap will be upped to 8 trillion to promote exports of small and mid-sized companies.

The government recommended monetary policy to be “accommodative” to support economic recovery. The government and central bank would join forces to “act aggressively” if market jitters deepen, it said. The ministry advised flexible central bank intermediary lending “in support of domestic and external financial and economic conditions” and to ensure smooth liquidity state for small and medium-sized enterprises.

The government will continue efforts to “stabilize the foreign exchange market” to fend off volatile repercussions from interest rate increases in the U.S. and other external factors. The government will reactivate a bond market stabilization fund with the ceiling of more than 10 trillion won and have state lenders buy undersubscribed corporate bonds to prevent liquidity crunch in the corporate sector as the result of rising bond market yields from tightening in the U.S.

The government will keep close watch on the household debt and the real estate market and respond with “flexible and customized” actions to prevent hard-landing from rises in interest rates.

Yoo Il-ho, deputy prime minister for the economy and finance minister will make a presentation on the Korean economy in New York next month to reassure overseas investors that the government is committed to revive the economy regardless of political uncertainties with the sitting president in impeachment proceedings.

By Cho Si-young and Kim Se-woong

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