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The Philippines plans a smaller increase in its 2010 spending plan as it seeks to narrow a record budget deficit while new tax measures trim revenue, government officials said.

The government may propose a “modest” budget of about 1.5 trillion pesos ($31.2 billion) for 2010, Budget Secretary Laura Pascua said in an interview yesterday in Manila. That would be an increase of less than 1 percent and compares with planned spending of 1.489 trillion pesos this year, which is 17 percent higher than 2008.

“It’s time to go back to the path of fiscal prudence,” Pascua said. “By then, the crisis would have probably tapered down and we’ll no longer need as much pump priming.”

President Gloria Arroyo had to forsake a plan to balance the budget last year when the global recession prompted her to boost public spending to revive slowing growth. The government aims to narrow next year’s deficit to 208.4 billion pesos as the economy recovers, from an estimated 250 billion pesos in 2009 that would be the biggest since 1985 when Bloomberg data began.

“It’s very, very important to go back to a fiscal consolidation phase to get investors’ confidence back,” said Luz Lorenzo, an economist at ATR-Kim Eng Securities Inc. in Manila. “It’s crucial to preventing a downgrade” in credit ratings, she said.

The world’s recovery from its deepest slump since the Great Depression may help the Southeast Asian nation accelerate growth to a range of 2 payday loans.6 percent to 3.6 percent next year from as little as 0.8 percent in 2009, the government predicts.

Election Spending

Expansion in the $144 billion economy will probably be faster in 2011 or 2012, Economic Planning Director Dennis Arroyo said in a separate interview yesterday.

Improving economic growth, helped by election spending, will reduce the need to increase public outlays next year, said Lorenzo at ATR-Kim Eng.

State spending may also be constrained by “looming revenue threats” from 10 proposed legislative measures that will prevent the government from increasing tax collection, Finance Director Ma. Teresa Habitan said.

The government plans to create more tax-free zones to boost investment and reduce its share of energy royalties to reduce power costs. Along with other proposals including abolishing documentary stamp tax and other levies on insurance policies and overseas remittances, these measures would deprive the government of about 51 billion pesos in revenue, Habitan said yesterday during a government budget planning session.

“During election season, there’s a tendency to approve revenue measures that would be more popular,” Pascua said. These would tend to reduce taxes, she said.

The Philippines holds national elections next year. The 2010 budget will be presented this quarter to Congress for approval.

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So just how many stimulus jobs have been created or saved so far?

The figure remains elusive, but Congress provided one of the first peeks this week by reporting that stimulus has funded 21,000 highway and transit jobs as of May 31.

The number, one of the first counts of actual stimulus-based employment, is based on state reports to the House Transportation and Infrastructure Committee. Thousands of indirect jobs — such as the deli employee who prepares lunch for the construction crew or the workers who produce the steel needed for projects — were also created or sustained.

The White House says the figure is in line with its projection that the $787 billion recovery act has created or saved 150,000 jobs in the administration’s first 100 days. The 150,000 number, which includes direct and indirect positions, is an estimate based on the amount of stimulus funds spent. Each $92,000 of stimulus funds spent translates into one job, according to the White House formula.

Congressional Republicans, who have blasted the recovery act as wasteful spending that won’t create nearly the number of jobs promised, took issue with the figure.

Rep. John Mica, R-Fla., criticized the Obama administration for not reporting a specific number of jobs created or saved by stimulus-based infrastructure spending.

Mica, the ranking Republican on the transportation committee, pointed out that only 21,000 positions have been produced, though the committee’s Democrats have said that the $64.1 billion in infrastructure spending would create or sustain more than 1.8 million jobs.

"This is pitiful that we can’t get people working, we can’t get the stimulus money out," Mica said. "People want jobs and they want them now."

In his weekly address, House Republican Leader John Boehner, R-Ohio, also slammed the administration for failing to stem the rising unemployment tide. The unemployment rate rose to 9.4%, its highest level in 26 years. It’s expected to climb to 9.6% when the June numbers are released next Thursday.

"All year long, Democrats here in Washington have made plenty of promises about putting Americans back to work, but I think the question is: Where are the jobs?" he said bad credit personal loans. "We all remember the trillion-dollar stimulus bill Democrats promised would be about jobs, jobs and jobs. And clearly all it’s turned into is about spending, spending, and more spending."

Creating jobs

The administration said that the 21,000 construction jobs figure meshes with the 150,000 figure. The White House is also taking into account the jobs created or saved by stimulus money spent on tax cuts and entitlements, such as Medicaid. Much of the initial stimulus funds spent went to states to help them cope with rising Medicaid rolls.

"It’s not just that we’re paving I-57 in Illinois, how many jobs did that create?" Gavin said. "It’s accounting for a much broader universe."

Testifying before the House committee Thursday, federal transportation officials updated their employment estimates. The Federal Transit Administration said that 19,000 jobs have been created or saved so far, and another 45,000 would be from the grants that are in progress. These figures are based on formulas.

Some 6,000 actual jobs have been created or saved by stimulus highway money, as of the end of May, according to the Federal Highway Administration. The agency estimates the 1,500 projects currently underway will ultimately create 50,000 positions. The agency’s total $27.5 billion stimulus allocation is estimated to create or sustain 300,000 jobs by 2012.

"Federal agencies, states and their local partners have demonstrated that they can deliver transportation and infrastructure projects and create urgently needed employment in the tight timeframes set forth in the recovery act," said Rep. James Oberstar, D-Minn., who heads the transportation committee. 

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Federal Reserve Chairman Ben Bernanke denied accusations Thursday that he pressured Bank of America to follow through on its purchase of Merrill Lynch late last year or risk having top management removed.

Testifying the House Committee on Oversight and Government Reform, the central bank chief maintained that his agency acted with the "highest integrity" in dealing with BofA, countering charges made recently by BofA (BAC, Fortune 500) chief Ken Lewis that Bernanke threatened him with his job when his company considered pulling out of the deal.

"I did not tell Bank of America’s management that the Federal Reserve would take action against the board or management," Bernanke said Thursday.

The Fed chief also rejected the notion that he asked former Treasury Secretary Henry Paulson to act on his behalf, a claim made by Lewis earlier this year that came to light during a related investigation on Merrill Lynch bonuses.

Thursday’s hearing into Bernanke’s role in the controversial deal comes at a time when the administration is looking to expand the Federal Reserve’s regulatory powers and just months before his term as chairman expires.

Lawmakers have been eager to determine if the Federal Reserve and Treasury Department overstepped their bounds in pushing through the merger. There have also been questions about whether Bank of America may have used the threat of scuttling the deal as a bargaining chip for additional government assistance.

"We need to get all the facts out on the table before we are in a position to say what happened and when it happened," committee chairman Rep. Edolphus Towns, D-NY, said Thursday.

Testifying before the same committee two weeks ago, Bank of America’s Lewis offered up his side of the story, saying he and other company executives were not looking for a handout. Lewis said that BofA approached regulators after discovering the scope of Merrill’s losses late last year.

At the time, Bank of America considered invoking the "material adverse change" or MAC clause, of the deal, which would have allowed Bank of America to walk away from the purchase.

But regulators feared that an unraveling of the deal would jeopardize the health of the U.S. financial system and the two firms themselves.

After some behind-the-scenes wrangling, regulators reached an agreement to give BofA $20 billion in aid in January to help them absorb Merrill. That assistance came on top of the $25 billion it received as part of the Troubled Asset Relief Program, or TARP. BofA also received loss guarantees on $118 billion in assets.

Focus on transparency

At times Bernanke appeared shaken and frustrated by members’ pointed questions about what he did and did not say when the merger appeared as if it might fall apart.

On several occasions Thursday, lawmakers cited a Dec. 20 email by Federal Reserve Bank of Richmond president Jeffrey Lacker insure car insurence. In that email, Lacker recounted a conversation with Bernanke, in which Lacker recalled the Fed chief saying that "management is gone" if Lewis tried to invoke the MAC.

Bernanke maintained that he could not remember the details of that conversation, which made for a heated moment with Rep. Dan Burton, R-Ind.

"One of the things that I learned was in order to keep people from perjuring themselves they couldn’t remember anything. Are you sure you can’t remember?" asked Burton.

Bernanke clarified Lacker’s comments, noting that what he said was that if Bank of America abandoned the deal and later on needed further government assistance as a result, then the firm would have to answer to regulators.

"I think if somebody makes a decision that results in their company failing and being rescued by the government, I think there should be consequences for them," he told lawmakers.

Bernanke also modified his "bargaining chip" remark that was widely cited in a Republican memo prepared for Thursday’s hearing. Bernanke noted that at first he believed Lewis was using the MAC threat to gain more assistance. But he said Thursday that further talks with Lewis later led him to believe that the BofA chief was just really uncertain about what to do.

As was the case during Lewis’ hearing two weeks ago, members of Congress also seized on the issue of disclosure during Thursday’s hearing.

Bernanke and Paulson have been accused of ordering Lewis not to disclose the details of talks with regulators. Others have charged that the two men failed to keep their fellow regulators in the loop, namely the Securities and Exchange Commission and Office of the Comptroller of the Currency, regarding what was happening with Bank of America.

Bernanke denied claims that he and Paulson tried to keep details of the negotiations with Bank of America a secret. On Wednesday, Rep. Darrell Issa, R-Calif, the committee’s ranking member, went so far as to call the Fed’s actions in the BofA-Merrill deal a "cover-up."

The issue of transparency at the Federal Reserve comes at a critical time. Lawmakers are carefully considering whether to give the agency a broader regulatory reach, one of the key components of the regulatory reform plan announced by President Obama last week.

This has given some lawmakers pause, particularly in light of what happened with Bank of America and Merrill Lynch.

"We can’t afford to make the Fed a super regulator, as some have proposed, without also increasing its transparency in meaningful ways," said Rep. Dennis Kucinich, D-Ohio. 

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Name: Robert Bertrand

Age: 62

Home:Alpharetta, Ga.

Profession: Senior project manager

Salary at last job: $150,000

Special skills: 0.8 handicap golfer

Personal: Married with three grown children, a teenage stepson, four grandkids

When Bob Bertrand retired in early 2006 at age 58 to live out his dream of playing on the Senior Professional Golf Tour, he thought he had the money part covered.

Throughout his career he’d saved the max in his company retirement plans; as a result, he had $425,000 socked away, plus another $500,000 or so in stock options.

Meanwhile, his wife, Susan, now 50, earned $140,000 a year as a mortgage company executive. Bertrand calculated that even if he never won any prize money, he’d still never have to work again.

Then the housing market blew up, taking Bertrand’s retirement plan with it. The stock options became worthless when their issuer - Home-Banc Mortgage Corp., where Bertrand had been vice president of strategic planning before retiring - went bankrupt in 2007. The bankruptcy also cost Susan her position.

Though neither has found a lasting job since, they’ve essentially maintained the same lifestyle. As a result, the Bertrands have burned through most of their savings; virtually all that’s left is an annuity worth $170,000.

Bertrand, now 62, needs a job immediately. But the search has become so frustrating that he admits he sneaks out to the links more than he should. "The golf course is my escape," he says. "It’s the place here I feel really good about myself."

The job hunt

Career coach Roy Cohen and executive recruiter John Ferneborg recommend:

Target smaller companies. It’s tough for sixtysomething professionals to get hired even in the best of times. And Bertrand faces the added stigma of having been out of the workforce for three years. Ferneborg says he’s making things even harder by focusing on large companies that tend to fill openings from a deep bench of ambitious younger execs.

The solution? Target manufacturing and consulting firms with revenue under $75 million. These firms are more likely to value a seasoned executive with experience at a big corporation. (Bertrand spent 21 years at Allied Chemical.) "Smaller companies often prefer someone who’s been around the track," says Ferneborg.

Demonstrate vitality. Bertrand doesn’t mention golf on his r

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If you think the new "Cash for Clunkers" law is going to help you buy a new car, you’re probably wrong.

As it’s written, the law will benefit few car shoppers and those who might actually benefit from it probably shouldn’t be buying a new car to begin with.

Here’s why it won’t do most people much good: The government refund vouchers for $3,500 or $4,500 are in replacement of — not in addition to — the ordinary trade-in value of the vehicle, which in many instances will be worth more than the voucher.

"It’s not a rebate," pointed out Jeremy Anwyl, chief executive of the auto Web site Edmunds.com. "It’s a minimum trade-in allowance."

If your trade-in is worth more than the voucher amount, you’d be better off just trading your car in as you ordinarily would and not even bothering with the "Cash for Clunkers" program. Even if your vehicle is worth a little less than that amount — say, $3,000 instead of $3,500 — you will be $500 better off under "Cash for Clunkers." But it you weren’t ready to buy a car before, is $500 going to make the difference?

All of this raises a bigger question, too. If you’re currently driving an old fuel hog that’s worth less than $4,500, there’s probably a reason.

"Most likely, you have the old car because you’re either frugal by choice or because of your situation," said Jeff Bartlett who writes about auto buying for Consumer Reports.

All of that means you probably shouldn’t be looking at new cars.

For someone who’s been driving an old, inefficient car on which they’ve made no payments in years, if ever, buying a new car would be a huge budget adjustment.

"How in the world are they going to step up and buy a new car with payments of $300 or $400 a month?" Anwyl said.

Why not simply sell or trade your car or truck for whatever it’s worth and buy a more efficient used vehicle that’s in good shape? That would save thousands over the cost of buying a new car, not the few hundred that a "Cash for Clunkers" voucher would save. Unfortunately, "Cash for Clunkers" vouchers cannot be claimed for used car purchases.

Besides all that, many of the cars and trucks people will want to trade in simply won’t have fuel economy bad enough to qualify for the benefit.

If you’re still thinking "Cash for Clunkers" might help you, here are some tips to make sure you don’t get taken advantage of when you go shopping.

Know your mileage: To qualify under the program, your car or SUV must get 18 miles per gallon or less in combined city and highway driving as measured using today’s EPA standards payday loan.

To find out if your car qualifies, go to the EPA’s fueleconomy.gov Web site and look up your vehicle. If you have a car, as opposed to an SUV or truck, you’ll probably find that it doesn’t qualify. For the most part, only the biggest cars with the biggest engines get mileage that bad.

Know the value: Go to a Web site like AOL Autos, Edmunds.com or Kelley Blue Book’s KBB.com and check the trade-in value of your vehicle. Also check how much it would be worth if you sold it yourself, which will be much more.

If your vehicle is worth more than $4,500, forget about Cash for Clunkers. If it’s worth less than that, but more than $3,500, "Cash for Clunkers" is only worth it if you’re buying a vehicle that will get you a big fuel economy jump that will net that $4,500 voucher.

If your vehicle is worth a lot less than $3,500, "Cash for Clunkers" may make sense. Still, you should seriously consider buying a good used vehicle first.

Know the rules: The original idea behind "Cash for Clunkers" was to help the environment, not just car sales. The law is supposed to get old polluting vehicles off the road.

To make sure that happens, the rules require car buyers to trade in cars that are actually being driven, not ones that have been up on blocks for years. Some legislators were afraid that scammers would simply pick up junked cars to trade in.

To avoid this, the car must be in drivable condition, have been insured for at least a year — an indication that you’ve actually been driving it — and it can’t be more than 25 years old.

There are other rules, too. Check the National Highway Traffic Administration’s CARS.gov Web site for more information.

Know the other savings: "Cash for Clunkers" is a replacement for trading in or selling your car. It’s not a replacement for manufacturer rebates or dealer discounts. "Cash for Clunkers" or not, you can still get those. Be sure to understand all the rebates and incentives and negotiate the purchase price just as you always would. Don’t think you’re getting a deal just because you’re getting government help.

"Whenever there’s a big discount, people put the blinders on," Bartlett said. 

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American International Group Inc’s plans to sell its broker-dealer business, AIG Advisor Group, are facing hurdles, the New York Post said.

Division CEO Arthur Tambaro in April said that AIG was in final discussions with a potential buyer, the paper said. But two months later, no deal has been struck.

Two sources told the paper that mutual-fund company Fidelity Investments considered providing financing for an unnamed bidder, but backed out. Fidelity declined to comment to the paper.

According to the paper, the lack of a deal for AIG Advisor Group has already led to some departures among its staff, and some say if a deal is not struck by year-end more than half of the company’s employees may head for the exit affordable health insurence.

AIG Advisors, which includes Royal Alliance Associates of New York, generated $1.3 billion in 2007 revenue, the paper said.

AIG could not be immediately reached for comment by Reuters.

(Reporting by Chakradhar Adusumilli in Bangalore)

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Nepal’s central bank urged commercial lenders to take advantage of the end of a decade of Maoist violence to expand in rural areas and support economic growth, Governor Deependra Bahadur Kshetry said.

“The central bank’s top priority is to ensure commercial banking services reach everyone,” Kshetry said in an interview in his Nepal Rastra Bank office in Kathmandu yesterday. “Access to finance is the fundamental need for growth.”

Seventy percent of Nepal’s 26 million people don’t have access to commercial banks and the World Bank says there’s chance to correct that after Maoist rebels laid down arms in November 2006. A dearth of funding has choked economic growth in the Himalayan nation’s $9 billion economy, forcing more than a third of its people to eke a living on less than $1 a day.

“Spreading the wings of banks is key to Nepal’s development,” said Birat Thapa, an executive committee member of the Federation of Nepal Chambers of Commerce and Industry. “It’s starting to happen.”

Bank branches declined to 1.76 per 100,000 people in Nepal in 2006 from 2.09 in 2001 as the Maoist insurgency spread, making access to finance the worst in South Asia, according to a March 2009 World Bank report. In 2006, India had 6.4 bank branches per 100,000 people.

Rural Banking

Nepal has 26 commercial banks, and about 170 smaller financial institutions, according to the Nepal Rastra Bank.

“Earlier there was also this perception that rural banking is unviable — it’s not the case any longer,” Kshetry said. “Remittances into rural areas from Nepalese living abroad have surged and banks are tempted to tap that.”

More than 2 million Nepalese work in the Gulf, South East Asian countries and other parts of the world. In the first nine months of the year ended March 31, they sent 150 billion rupees ($1.9 billion) to Nepal, an increase of 60 percent from the same period a year earlier. Remittances are the biggest foreign currency earnings of Nepal, and account for 40 percent of the total reserves.

Still, Nepal, Asia’s youngest democracy after its 240-year- old monarchy was ousted last year, is in the midst of political chaos again cash advance lenders.

The Maoist-led government, which took power nine months ago after winning a general election, fell in May following a failed attempt to sack the head of the army.

A group of rival political parties led by Madhav Kumar Nepal of the Communist party of Nepal (Unified Marxist-Leninist) have formed a new ruling coalition.

Maoist Threat

The Maoists have pledged to boycott parliament and disrupt daily life in Nepal until the president reverses his move to reinstate the head of the army and apologizes.

The Maoists are scheduled to meet today to discuss the future of the party. It will be the first meeting of the 45- member politburo since party leader Pushpa Kamal Dahal — known as Prachanda — resigned as prime minister.

The unrest has promoted strikes in various parts of the country and crippled industrial production, which fell 1.5 percent in the 11 months to May, Kshetry said. Economic growth may slow to 3.5 percent in the year ending June 30 from 5.6 percent in the previous year, he said.

“I am hopeful that peace will prevail,” Kshetry said.

Kshetry said he can’t lower interest rates to support economic expansion because of high inflation. Nepal’s inflation rate climbed to 11.9 percent in March from 9 percent a year earlier because of a shortage of food and fuel, Kshetry said.

Interest Rate

The central bank raised the cash reserve ratio to 5.5 percent from 5 percent and the key bank rate to 6.5 percent from 6.25 percent in October 2008. It has kept policy rates unchanged since, Kshetry said.

“Next year, we will be able to scale inflation down,” the governor said, without giving a forecast.

Nepal, which shares an open border with India and pegs its currency to the Indian rupee, is relying on faster economic growth in India to pull its economy forward. Sixty percent of Nepal’s foreign trade is with India.

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Beyond being good corporate citizens, do international firms operating in China have a moral duty to advance democracy and human rights?

Executives roll their eyes at the question: the typical answer is that companies know they must set an example in upholding labor laws or face the wrath of consumers and the threat of stiffer regulation; but no, multinationals have no business meddling in Chinese politics.

Michael Santoro, a professor of business ethics at Rutgers Business School in New Jersey, challenges that conventional view, arguing that foreign business can and should do more in the coming decade to shape social and political change in China.

In a new book, “China 2020,” Santoro says it is in the economic interest of Western firms to abandon their “complacent partnership” with the Chinese government.

He wants them to stick their necks out and press for things such as an independent judiciary and Internet freedom — topical in light of fears that China’s order that all new personal computers must carry anti-pornography filtering software was a cloaked way of tightening censorship.

Multinationals think it would be foolish and culturally insensitive to wade into such deep waters, but in fact they run a bigger risk if they do not get involved, Santoro says.

“Foreign investment in China will never truly be secure unless it is embedded in a society where rights, including economic rights, are respected, where the government bureaucracy is effective in enforcing market regulations, and where a strong and independent rule of law protects the rights and economic interests of its citizens,” Santoro writes unique business cards.

NOT REALISTIC

The publication of the book coincides with the twentieth anniversary of the killings of hundreds around Beijing’s Tiananmen Square after weeks of protests against corruption and a lack of freedom of speech.

That does not make foreign executives that Santoro is seeking to stir into action any more receptive to his arguments.

Joerg Wuttke, president of the European Union Chamber of Commerce in China, said foreign firms should not have to justify themselves by showing that they are working toward the ideal of democratic institutions.

“In the real world, their influence on local governments is minimal,” Wuttke said. “Moreover, multinationals are unlikely to exercise whatever influence they might actually have if this adversely affects the efficiency and profitability of their normal business operations.”

On the ground, international companies were making a practical difference in China under the broad banner of corporate social responsibility (CSR), he said.

They might not fight for freedom of speech, but firms were raising workplace standards, investing in skills and setting quantifiable energy and environmental protection targets.

Wuttke said manufacturing firms put weight on CSR even though the investment was often seen as a direct threat to profitability because domestic competitors ignored baseline norms that Western firms took for granted. 

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South Korea’s bond investors made a wrong-way bet that policy makers would switch their focus to tackling inflation while the economy remains weak, Vice Finance Minister Hur Kyung Wook said.

“There was confusion in the market as the message from policy makers has been taken in a wrong way,” Hur said in an interview in Seoul yesterday. “A change in macroeconomic policy risks choking off an economic recovery in an anemic stage. The job market is still very bad, despite some upward potential on the economy.”

The yield on five-year government debt soared to the highest since November last week after Bank of Korea Governor Lee Seong Tae said the downturn for the $929 billion economy has probably ended, raising the prospect of an increase in interest rates. The central bank noted after keeping the seven-day repo rate steady at 2 percent on June 11 that the “mild upward trend” of home prices has continued.

Data from Asia’s fourth-largest economy have been mixed, with exports sliding at the fastest pace in four months in May and industrial output rising for a fourth month. The jobless rate climbed to a four-year high of 3.9 percent.

The yield on the 4.75 percent note due March 2014 has risen 102 basis points since touching a four-year low of 3.72 percent on Jan. 8, according to data compiled by Bloomberg. The yield touched 4.97 percent on June 11, the highest since Nov. 28 and fell four basis points to 4.74 percent today.

Bonds Rally

“Concerns about a rate hike were overblown and the bond market is regaining lost ground with some interest in hard-hit longer maturities from banks and insurance firms,” said Kim Taek Hoi, a fund manager at Hana Bank in Seoul. Korea’s fourth- largest lender holds about 14 trillion won ($11 billion) of bonds.

Economic growth in the second quarter will probably be better than the first quarter’s 0 pay day loan.1 percent expansion, Hur said. Rising oil prices and tensions linked to North Korea remain risks to the economy in the second half, he added.

“We should maintain an expansionary policy until the recovery is assured,” Hur said. “We can’t find any sign of inflation anywhere. Consumption has to improve and investment also has to recover. There are a lot of unsold apartments and home price gains are limited.”

On April 30, lawmakers approved a 17.2 trillion-won ($13.8 billion) package of cash handouts, cheap loans, labor-market aid and infrastructure spending. That added to the 50 trillion won in relief measures already allocated.

The Bank of Korea cut borrowing costs by 3.25 percentage points since October. The consumer price index climbed 2.7 percent in May from a year earlier, the slowest pace in 20 months, and the statistics office said on June 1.

Won Reasonable

Hur said the currency market is behaving “reasonably.” The won has rallied 27 percent versus the dollar from an 11-year low on March 3 and was little changed at 1,259.05 today.

Financial markets, roiled by concern that Korean banks and companies may face a debt default, have regained “stability” as the current-account surplus reached $17 billion in the first five months of 2009, Hur said. Korea posted a $6.4 billion deficit last year.

The government “feels comfortable” with its $227 billion in currency reserves and may even seek a larger amount that can help shield the nation against external shocks, he said.

“The currency market was oversensitive in March and the exchange rate was overshooting,” Hur said. “The currency is now moving reasonably based on economic fundamentals.”

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South Korea’s bond investors made a wrong-way bet that policy makers would switch their focus to tackling inflation while the economy remains weak, Vice Finance Minister Hur Kyung Wook said.

“There was confusion in the market as the message from policy makers has been taken in a wrong way,” Hur said in an interview in Seoul yesterday. “A change in macroeconomic policy risks choking off an economic recovery in an anemic stage. The job market is still very bad, despite some upward potential on the economy.”

The yield on five-year government debt soared to the highest since November last week after Bank of Korea Governor Lee Seong Tae said the downturn for the $929 billion economy has probably ended, raising the prospect of an increase in interest rates. The central bank noted after keeping the seven-day repo rate steady at 2 percent on June 11 that the “mild upward trend” of home prices has continued.

Data from Asia’s fourth-largest economy have been mixed, with exports sliding at the fastest pace in four months in May and industrial output rising for a fourth month. The jobless rate climbed to a four-year high of 3.9 percent.

The yield on the 4.75 percent note due March 2014 has risen 102 basis points since touching a four-year low of 3.72 percent on Jan. 8, according to data compiled by Bloomberg. The yield touched 4.97 percent on June 11, the highest since Nov. 28 and fell four basis points to 4.74 percent today.

Bonds Rally

“Concerns about a rate hike were overblown and the bond market is regaining lost ground with some interest in hard-hit longer maturities from banks and insurance firms,” said Kim Taek Hoi, a fund manager at Hana Bank in Seoul. Korea’s fourth- largest lender holds about 14 trillion won ($11 billion) of bonds.

Economic growth in the second quarter will probably be better than the first quarter’s 0 cash loans.1 percent expansion, Hur said. Rising oil prices and tensions linked to North Korea remain risks to the economy in the second half, he added.

“We should maintain an expansionary policy until the recovery is assured,” Hur said. “We can’t find any sign of inflation anywhere. Consumption has to improve and investment also has to recover. There are a lot of unsold apartments and home price gains are limited.”

On April 30, lawmakers approved a 17.2 trillion-won ($13.8 billion) package of cash handouts, cheap loans, labor-market aid and infrastructure spending. That added to the 50 trillion won in relief measures already allocated.

The Bank of Korea cut borrowing costs by 3.25 percentage points since October. The consumer price index climbed 2.7 percent in May from a year earlier, the slowest pace in 20 months, and the statistics office said on June 1.

Won Reasonable

Hur said the currency market is behaving “reasonably.” The won has rallied 27 percent versus the dollar from an 11-year low on March 3 and was little changed at 1,259.05 today.

Financial markets, roiled by concern that Korean banks and companies may face a debt default, have regained “stability” as the current-account surplus reached $17 billion in the first five months of 2009, Hur said. Korea posted a $6.4 billion deficit last year.

The government “feels comfortable” with its $227 billion in currency reserves and may even seek a larger amount that can help shield the nation against external shocks, he said.

“The currency market was oversensitive in March and the exchange rate was overshooting,” Hur said. “The currency is now moving reasonably based on economic fundamentals.”

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