(Adds ministry, analyst quotes, details)
By Kim Myong-hwan
SEOUL, March 27 (Reuters) - South Korea unveiled on Thursday a package of measures targeting investment and aimed at propping up a sagging economy, but stressed that despite uncertainties both at home and abroad there was no crisis.
The government would advance spending from the state budget and actively promote capital investment as a priority to keep the economy on track in the face of growing geopolitical risks, the finance ministry said in its first economic policy road-map prepared under President Roh Moo-hyun.
The ministry also pledged to calm fears about Roh's election promise to stamp out corruption at business conglomerates, known as "chaebol", by clarifying the reform timetable.
South Korea's economic planners have been ordered to sharpen up policy plans by Roh, who is keen to calm investor nerves following recent financial market turmoil after the unearthing of a $1.2 billion corporate accounting scandal.
"Our main goal of the package is to protect the economy from uncertainties in the short run and beef up growth potential in the long run," said Bahk Byong-won, director-general of the ministry's economic policy division.
To encourage investment, the government would relax rules prohibiting construction of industrial plants in city areas, paving the way for Europe's biggest consumer electronics firm, Philips Electronics NV , to build a LCD plant near Seoul.
It would also allow domestic sales of diesel-driven cars from 2005 and raise the threshold on the category of environmentally friendly mini-cars, which enjoy preferential tax treatments, from an engine capacity of 800-cc to 1,000-cc to encourage production.
"Allowance of domestic sales of diesel passenger cars would generate investment equivalent to about 2.5 trillion won ($2.01 billion)," the ministry said.
The finance ministry said it would spend about 53 percent of the 2003 state budget in the first half, up from 47 percent the same period last year.
ECONOMIC REALITY
Analysts appeared broadly to back the steps as a show of government readiness in time of difficulties and a sign that the reformist Roh had come to grips with economic reality, by trying to avoid a head on clash with big business.
"The package seems to be meaningful because it shows that the government is aware of problems and ready to tackle them," said Huh Chan-kook, an economist at Korea Economic Research Institute.
"Most of the measures sound familiar. But even repetition of pledges are good in building up confidence."
Consumer confidence has fallen in recent months over worries about the nuclear ambitions of communist neighbour North Korea and a U.S.-led military campaign in Iraq.
On top of that, a package of measures the government implemented last October to curb a real estate bubble and excessive household debt has also hit consumer spending and corporate investment.
The arrest of ten executives at SK Global , the trading arm of South Korea's fourth-largest conglomerate, SK Group, earlier in March sparked fears that the investigation was a prelude to an allout campaign to tame big business, much of which did not support Roh in last December's election.
In an apparent bid to calm investors, Roh told his cabinet on Tuesday: "It's the government policy to seek thorough economic reform but the pace of the restructuring will be adjusted to take into account differences between reality and principles."
Finance Minister Kim Jin-pyo has stressed that reforms would be conducted in a market-friendly way.
Family-owned chaebol, a sprawling cluster of business affiliates, contributed to the country's economic advance from the ashes of the 1950-53 Korean war, but their over-leveraged expansion was blamed for the 1997/98 financial crisis.