Korea has been stuck at below-3 percent growth in recent years, with a per capita gross national income above $30,000 remaining an elusive goal. The country’s annual economic growth rate has hovered below the global average since 2011, according to data from the International Monetary Fund.
Economists advise the new president needs to create and implement a best policy mix to pull the economy out of the low-growth rut. In the process, he should not hesitate to adopt sensible policies suggested by his rival candidates during the election campaign.
This approach would help him get parliamentary approval of bills needed to push through his economic agenda and move toward national integration beyond his support base.
“There is no such policy that can satisfy all people. The new president should exert an economic leadership by putting priority on policies not just to serve his supporters but to ensure the better future of the nation as a whole,” said Lee Jong-wha, professor of economics at Korea University.
Moon has proposed increasing benefits for children, the elderly and the unemployed and creating 810,000 jobs in the public sector, estimating such expanded welfare and employment programs will cost 178 trillion won ($157.1 billion) over the coming five years. But experts say he has underestimated the actual cost.
Moon needs to put forward a concrete and substantial plan for boosting growth to help fund welfare benefits and create more jobs in the corporate sector.
In this regard, it is necessary to balance his pledges to reform large conglomerates with efforts to forge a more business-friendly environment, economists say.
On the campaign trail, Moon made superficial remarks on the need to reinvigorate the economy and adapt to a new industrial revolution. He should now make a specific commitment to structural reforms and deregulation, which hold the key to sustainable growth.
The economic team to be installed by Moon may get some relief from improving indicators of the economy.
On the back of a recovering global economy, Korea’s exports jumped by a nearly seven-year high of 24.2 percent in April, extending the streak of on-year increase to six months.
Facility investment and industrial production have increased in keeping with a rise in outbound shipments.
But a recent report from the Korea Development Institute, a state-run think tank, noted growth momentum still remained weak due to sluggish private consumption offsetting the upward pace of exports and investment.
It said a robust recovery “is not yet evident.”
Private consumption increased a mere 0.4 percent from three months earlier in the first quarter of this year, the lowest since 2009 when the economy was getting through the aftermath of the global financial crisis. Furthermore, much of the increase was attributable to a rise in spending by Korean travelers abroad.
Economists say the new government should step up efforts to improve the domestic business environment to encourage companies to increase investment and employment at home. Raising corporate taxes would go against global competition to forge favorable conditions for corporate activity.
Measures need to be taken to strengthen the social safety net and increase earnings of low-income households, which have a higher propensity to consume.
Economists also say the new economic team should pursue a proper mix of fiscal and monetary policies in close coordination with the central bank to bolster domestic demand without exacerbating the household debt problem and hurting fiscal soundness.
“The new government needs to strengthen fiscal roles in shoring up domestic demand, but at the same time be cautious to avoid a continuous increase in the burden of state spending,” said Sung Tae-yoon, professor of economics at Yonsei University.
Moon’s economic team is also tasked with dealing with increasing external trade pressures, which threaten to dampen the country’s exports that account for about half of its gross domestic product.
The most serious challenges will be to renegotiate with the US on a bilateral free trade agreement, which President Donald Trump called “horrible,” and get China to retreat from its retaliatory moves against Seoul for the hosting of a US anti-missile system.
Local companies need to be encouraged to diversify overseas markets for their goods to reduce their reliance on the world’s two largest economies.
It is necessary to normalize the economic partnership with Japan, decoupling it from diplomatic disputes over historical issues.
Structural reforms and deregulation will prove a more difficult and challenging part of the new administration’s economic tasks.
Restructuring marginal companies saddled with overcapacity and heavy debt should be accelerated and the labor market needs to be made more flexible to help enhance the country’s competitiveness.
Drastic deregulation will be essential for developing new industries and the service sector, which is an effective way to create more decent jobs for young people.
By Kim Kyung-ho (firstname.lastname@example.org