(Recasts, adds analyst comment)
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 uncertainties at home and abroad did not add up to a crisis.
The government would advance budgeted spending and actively promote capital investment 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 moved to calm fears that many more companies would be caught up in corruption probes, after the unearthing of a $1.2-billion corporate scandal at one large conglomerate spooked investors holding shares in other firms.
"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, the director-general of the ministry's economic policy division.
Analysts broadly welcomed the package, details of which were widely known beforehand. Market reaction was muted.
South Korea has been buffeted by external influences -- such as the nuclear ambitions of communist neighbour North Korea and the U.S.-led war on Iraq -- which have hit consumer confidence.
On top of that, government measures last October to curb a real estate bubble and high household debt hit consumer spending and corporate investment.
President Roh said he had ordered the finance ministry to supplement the package with detailed measures to keep the jobless rate low and improve welfare for the jobless.
INVESTORS NERVOUS
South Korea's economic planners were ordered to sharpen up policy plans by Roh, who is keen to calm investor nerves after the arrest this month of 10 executives at SK Global , an arm of South Korea's fourth-largest conglomerate, SK Group, in the accounting scandal.
The ministry said it would clarify the timetable for business reforms that grew out of an election promise by Roh to stamp out corruption at large conglomerates, known as "chaebol". Roh says he still requires reform but the pace can be adjusted.
South Korean authorities have tried to calm investor fears over market turmoil that emerged in the wake of the scandal. They stress there are no parallels to the 1997-98 financial crisis, which in South Korea was blamed on an over-leveraged expansion by the family-owned chaebol.
Unease that malpractice could surface at other conglomerates sent Seoul shares to 17-month lows this week. Bond prices hit 12-week lows and the won lost ground.
The share market closed on Thursday before the package was released, with the main KOSPI index down one percent.
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.
Analysts backed the package as a show of government readiness to tackle difficulties and a sign Roh had adjusted to 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."
SHORT-TERM QUESTIONS
But some suggested more drastic steps may be needed.
"The package seems to be skewed to long-term remedies. As uncertainties refuse to disappear, there is growing need for short-term and more drastic steps", said Oh Suk-tae, an economist at Citibank in Seoul.
To encourage investment, the government said it would relax rules prohibiting construction of industrial plants in city areas. This paved the way for Europe's biggest consumer electronics firm, Philips Electronics NV , to build a liquid-crystal display plant near Seoul.
Domestic sales of diesel-driven cars would be allowed from 2005 and tax breaks would be offered on a wider range of environmentally friendly mini-cars to encourage production.
"Allowing domestic sales of diesel passenger cars would generate investment equivalent to about 2.5 trillion won ($2.01 billion)," the ministry said. ($1=1244.0 Won)