S.Korea sets aside US$2.9b aid

SEOUL - SOUTH Korea has set aside around $2.9 billion (S$4.34 billion) in emergency state funds that can be tapped to help the economy shake off its worst crisis in a decade, officials said on Tuesday.

The government has allocated four trillion won in reserve funds for this year, compared to 2.4 trillion won last year, the ministry of strategy and finance said.

It is the largest amount allocated to state emergency funds in six years.

'In the case of emergency, the government could tap the funds immediately without the need to seek a supplementary budget,' a ministry official told Yonhap news agency.

The government has announced extra spending and tax cuts worth billions of dollars to try to prop up the economy, and is also frontloading this year's budget spending in the first half as much as possible.

Last week, President Lee Myung Bak replaced his finance minister and other key economic officials in an effort to better cope with the slump.

Asia's fourth largest economy shrank 5.6 per cent quarter-on-quarter in the period October to December compared with a 0.5 percent expansion in the third quarter.

It was the worst showing since the first quarter of 1998.

Year-on-year the economy shrank 3.4 per cent in the fourth quarter compared with 3.8 per cent growth in the third.

The annualised figure showed the biggest fall since the fourth quarter of 1998, when it contracted six percent.

For the whole of 2008 South Korea's economy grew 2.5 per cent, sharply down from a five per cent expansion in 2007.

The government's forecast for this year is for two percent growth but some think-tanks and investment banks are forecasting an outright recession. -- AFP