1. Current economic trend

    Exports in October recorded 43.36 billion dollars, increase from the previous month (39.42 billion dollars), up 27.6 percent year-on-year and 9.9 percent month-on-month basis. A notably improved rate of wireless device led the upward trend of overall exports. During September, the retail sales index is up 4.5 percent from the same period a year ago, but relatively small increase comparing with that of the previous month (9.3 percent), in this sense, index figure recorded 0.1 percent rise from the previous month, because the consumption of durable goods recorded a growth rate of 7.3 percent, whereas the consumption of quasi-durable and non-du-rable goods recorded -3.7 percent and -2.3 percent respectively. In September, the equipment investment index rose 11.8 percent from same month last year but de-creased 3.6 percent month on month basis due to the decrease in investment in machinery. Regarding the labor market-related indicators, recovery trend is slow-down and youth unemployment rate was increased. However, during October, the number of employed recorded a rise of 316,000 (1.3 percent). The upward trend has been continued in the manufacturing sector (241,000) and healthcare & social wel-fare services (158,000). CPI in October rose 4.1 percent from same month in previ-ous year, due to soaring price of agricultural products. Core inflation registered 1.9 percent year on year, and 0.3 percent month on month increase.

    2. The long-term economic outlook and fiscal policy issue

    The real growth rate of the Korean economy is expected to be 5.8 percent for 2010, following 3.9 percent in 2011 and 4.1 percent on annual average between 2011 and 2014, respectively. Moreover, total revenue is projected to be 296.3 trillion won for 2010, and 313.7 trillion won for 2011. According to the 2011 budget, total expendi-ture for 2011 is 309.6 trillion won, which increases 5.7 percent on year-on-year basis. however, in terms of separating then into mandatory and discretional spending, this budget restricts the increasing rate of discretional spending to 2.9 percent. This means that this 2011 budget freezes the real value of discretional spending, there-fore this year’s budget reflects the government efforts to secure fiscal soundness. However, even though this restriction will be implemented for next four years, it is hard to avoid deficits in the operational budget balance until 2014 amounting to 18 trillion won. Moreover, national liability is expected to be 535 trillion won in 2014, exceeding its government’s target (500 trillion won). For these reasons, the National Assembly Budget Office proposed the fiscal rule of “potential growth rate of current account to -2 percent.” according to this rule, the operational budget balance will be down to 6 trillion won in 2014.

    With regard to macro economic condition including total revenue, total expen-diture, national liability and budget deficit in succeeding four years, the restriction of mandatory spending should be implemented. Furthermore, tax reform should be enacted both deliberately and concretely in oder to broaden tax base and pursue transparency of national finance.