Posted by Gilmour Poincaree on November 4, 2008

Published: November 4, 2008

by Victoria Burnett and Bettina Wassener

South Korea announced a $11 billion stimulus package on Monday and the Spanish government unveiled a program to allow out-of-work homeowners to defer mortgage payments, the latest in a string of steps by governments seeking to prop up economic growth and cushion the effect of the financial crisis.

On Tuesday, Australia joined the trend when its central bank cut a key lending rate.

South Korea, which has been hit hard by U.S. and European consumers’ reluctance to spend money on goods like electronics and cars, and where the financial crisis has left local banks struggling to pay billions of dollars in short-term loans, has announced a series of emergency measures in recent weeks.

The South Korean president, Lee Myung Bak, announced measures that include an additional 11 trillion won in government spending and 3 trillion won in tax cuts, a total equivalent to $11 billion. These are aimed mainly at the real estate and construction industries.

The South Korean finance minister, Kang Man Soo, was quoted by Bloomberg News as saying, “Now is the time that a financial markets crisis is being transferred to the real sector, and we need to get down to start to manage the situation.”

The package is intended to raise economic growth next year by an additional one percentage point, to about 4 percent. It was announced as fresh data showed that South Korean export growth had slowed to its lowest levels in 13 months in October, further evidence that the downturn in the United States and Europe was spilling over into the export-driven economies of Asia.

Economists said the export figures were also likely to prompt the South Korean central bank to cut the cost of borrowing at its policy meeting Friday. That would be the second cut in two weeks, coming soon after the bank staged a surprise cut, of three-quarters of a percentage point at an emergency meeting last week.

The Spanish move came as other countries with troubled housing markets, including the United States, are debating steps to help people stave off foreclosure, but have yet to enact any direct measures.

Spain is grappling with an economy that is slipping into recession and has the highest unemployment rate in the European Union.

Prime Minister José Luis Rodríguez Zapatero told a news conference in Madrid that the package would also include incentives for employers to hire the jobless.

Under the mortgage relief program, unemployed homeowners and some retirees could postpone payment of half their monthly bill for two years starting in January — as long as the amount deferred each month was no more than 500 euros, or about $635. The offer would apply to mortgages of up to 170,000 euros and could affect about half a million people, Zapatero said.

The Spanish government will underwrite the deferred payments, which may be spread over 10 years, Zapatero said.

Spain had been a European leader in terms of job creation in the last decade, as well as in home building. But the economy has ground to a halt as the property bubble deflated and the global credit crisis hit home.

In an effort to persuade businesses to hire those now receiving benefits, Zapatero said the government would pay companies 1,500 euros a year for each job given to an unemployed worker supporting a family. He also said bonuses would be introduced for companies hiring people working in research and development and renewable energy.

The package is intended to bolster growth next year by an additional percentage point to around 4 percent, and was announced as fresh data showed export growth in October had slowed to its lowest pace in 13 months.

Weak economic data in Australia led that country’s central bank to reduce its key rate Tuesday. The cut was the third since Sept. 3.

The moves have been intended to prop up the Australian economy, which is highly dependent on raw materials production and has suffered from falling prices for iron ore and copper in recent months. Data released Monday showed retail sales fell 1.1 percent in September, much more than had been expected, while house prices fell 1.8 percent during the third quarter.

China, which last week joined a flurry of interest rate cuts in the United States and elsewhere, over the weekend announced it was loosening limits on bank lending. Signs in China also indicate that economic growth is slowing.



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