The South Korean government said yesterday it would soon announce additional economic stimulus measures to boost sluggish domestic demand and overcome the global financial debacle. They will include tax cuts and expansion of fiscal spending, the finance ministry said.

Ministry officials said they are considering advancing the planned income, corporate and real-estate tax cuts and increasing budget spending for next year.

President Lee Myung-bak said during a visit to Changwon that Korea needs to boost domestic demand for one to two years due to the global economic downturn. He said measures will be announced in early November.

Officials said a total of 195 trillion won ($187.2 billion: conversion is based on 2008 average rate of 1,041.5 won per dollar) in government money will have been spent on the economic rescue package by next year. The 195 trillion won is about 89 per cent of the 220 trillion won ($151 billion)national budget set for this year, if general accounts and special accounts are combined.

Out of the 195 trillion won, 44 trillion won will go to boost won liquidity in the forms of direct won injections, bank loans, special bonds and tax cuts. The other 151 trillion won ($104 billion)?is set to be used to bolster dollar liquidity, which includes the $100 billion external debt guarantees for banks until June next year.

"It seems that the government is doing everything it can, considering the cash injection, economic-boosting measures, and the interest rate cut," said Oh Suk-tae, an economist at Citibank Korea.

"The spending figure itself is not really important, but the problem is markets are not reacting as much as the government wants them to, just like in the United States."

The central bank's 0.75 percentage point interest rate cut, the largest in its history, did not bring much positive change to financial markets on Monday.

The stock and currency markets seem to want "limitless" liquidity injection from the central bank, rather than an interest rate cut, according to Oh.

The Bank of Korea said on Friday that it provided 2 trillion won to securities firms and asset management companies through repurchase agreements to stabilize the precipitating stock markets. One day before, it injected 700 billion won in the market by repurchasing monetary stabilization bonds before their maturity. It was the first time it had boosted liquidity through the early purchase of monetary stabilisation bonds since March 2003.

Also, the BOK is to raise the cap of low-rate loans to banks by 2.5 trillion won to 9 trillion won, to help them extend more lower-interest SME loans. Such a step was last taken in October 2001, after the Sept. 11 terrorist attacks in the United States.

Also, the central bank said it would buy up to 10 trillion won-worth of bank bonds and special bonds through repurchase agreement operations to help lenders secure more won.

The government is pumping another 9 trillion won into the sagging construction industry.

The 9 billion won package includes buying 3 trillion won worth of idle land, 2 trillion won worth of unsold homes, and allowing 2 trillion won worth of contracts between the Korea Land Corp. and builders to be canceled.

To help ordinary people hit by high inflation in the first half and boost domestic demand, 4.5 trillion won of national spending was added to the budget, approved by the National Assembly last month, as well as a 13 trillion won tax cut for next year, promised by President Lee Myung-bak in a budget address to the National Assembly on Monday.

To ease the dollar shortage, the government and the BOK already pumped $15 billion into the foreign currency swap market and the Export-Import Bank of Korea to stabilize the financial markets.

Taking into account the $100 billion external debt guarantees for banks and $30 billion for the swap market, the dollar injection reaches $145 billion, or 151 trillion won.

The Finance Ministry is to announce an additional tax cut and fiscal expansion measures to boost domestic demand and slow the deceleration of exports today or tomorrow, industry sources said.