South Korea parliament returns to work on reforms

SEOUL (Reuters) - South Korea's parliament discussed a series of bills on Wednesday the ruling party says are needed to steer the country through the global economic crisis, after opposition MPs ended a sit-in protest at the legislature.

Opposition Democratic Party lawmakers called off their blockade of the main parliamentary chamber on Tuesday and ended a three-week protest after agreeing to vote on the reform bills and a free trade pact with the United States in the coming weeks.

Several parliament committees were reviewing bills, officials said.

President Lee Myung-bak's ruling Grand National Party (GNP), which has a solid majority in parliament, wants to pass dozens of reform measures, including sweeping tax cuts, easing restrictions on bank ownership and privatizing state-run firms.

Opposition MPs had said they wanted to block economic reforms they see benefiting big conglomerates and the rich. They also believe the U.S. trade deal will hurt farmers who will lose protection due to market-opening provisions.

But the Democrats -- in a major reversal -- agreed to put the U.S. free trade deal to a vote after U.S. President-elect Barack Obama takes office later this month.

Political analysts said parliamentary approval of the deal was almost certain and the delay was a face-saving measure for the Democrats.

Polls show most South Koreans support the trade agreement, which is expected to give the country a leg up over Asian rivals in the major U.S. export market and raise the global competitiveness for domestic sectors such as financial services.

There has been growing public anger in South Korea at the parliament impasse as well as frustration among business leaders at the political obstacles to getting economic reforms passed.

GRIM ECONOMIC OUTLOOK

Analysts at banks such as UBS have warned the country's economy could shrink by as much as 3 percent in 2009.

The reform plans include loosening restrictions on conglomerates making cross-unit investments and taking stakes in commercial banks. Analysts say the measures are aimed at encouraging big companies to boost investment in domestic assets.

Economists said it was too early to assess the impact of the reforms because the political troubles made it difficult to anticipate which bills would be approved, adding it could be several years before any effects were seen.

"(The reforms) are not going to help in terms of macroeconomics in the short term but they will help reform the financial system," said Park Jongkyu, senior research fellow at the Korea Institute of Finance.

South Korea said on Tuesday it aimed to spend 50 trillion won ($38.7 billion) over the next four years on large infrastructure projects and create 140,000 jobs. Park said there may be too much emphasis on construction and not enough on start-up firms.

Studies have said the U.S. trade deal, struck in 2007 and yet to be approved by lawmakers in the United States either, would increase the $78 billion a year in two-way trade with South Korea by about $20 billion.

Analysts expect a vote on the deal in the U.S. Congress will not come for several months. The deal faces a rough ride in a new Congress that is seen as more protectionist.

Obama has said parts of it need to be revised, especially the auto trade provisions.

(Additional reporting by Jon Herskovitz and Kim Yeon-hee; Editing by Nick Macfie, Jonathan Hopfner and Dean Yates)