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New Year opens with gloomy export news; strong public support needed for reformsBy Korea Herald
Published : Jan. 3, 2023 - 05:31
The New Year began with gloomy economic news. The Ministry of Trade, Industry and Energy announced on Sunday that the country posted a trade deficit of $47.2 billion last year. It was an all-time high in annual terms. The country was in trade deficit for nine straight months. Export decreased for recent three months in a row. The government forecast export to decline 4.5 percent this year.
This news on New Year's day reminds South Koreans of highly uncertain and severe economic conditions facing them. To make matters worse, a high inflation and sharp hikes of interest rates have weakened consumption and aggravated investment conditions. The government expects corporate investment to shrink 2.8 percent this year.
In a situation where three pillars of the South Korean economy -- exports, investment and consumption -- are shaking at the same time and the country's growth is expected to remain low (1 percent range) this year, top priority should be placed on reinvigorating the economy and restoring growth momentum.
Electric and gas rates and public transportation charges are scheduled to rise, making people's lives more difficult. Employment prospect is dim. Last year saw employment increase by 810,000 but the government expects employment to expand just by 100,000 this year. If employment increases by a small margin amid high inflation and high interest rates, people's ability to consume will fall further. The government should try harder to protect the livelihood of the socially and economically vulnerable working class from recession while pushing policies to increase job openings for the young people.
President Yoon Suk-yeol said in his New Year's address that a global recession will likely hit the country hard this year. He vowed to place economy at the heart of diplomacy and micromanage export strategy. He seems determined to revive export. He took the right course, given current economic difficulties and the role of export in propelling the Korean economy.
However, there is concern about whether the government will be able to break through economic crisis as intended. Last year it tried to give businesses a shot in the arm by cutting corporate tax rate by 3 percentage points to the same level of major countries, but the plan was set back while it went through the National Assembly. The rate was finally reduced by just 1 percentage point. Additional rate cut is needed.
Export of semiconductor, one of South Korea's main export items, is said to have decreased nearly 30 percent year-over-year last month. As foreign countries have gone out of their way to support their semiconductor industries profusely, the ruling People Power Party proposed a bill to offer a tax credit of 20 percent for large companies' semiconductor facility investment. But it ended up at 8 percent, far below the initial goal. Considering the importance of semiconductor in the nation's economy, the government should work out measures again to beef up the competitiveness of Korea's semiconductor industry.
The National Assembly's support is critical to policy success. In his New Year address, Yoon emphasized the importance of labor reform, among others, in reviving the economy. The playing field was severely lopsided in favor of labor under the Moon Jae-in administration. Many people agree on the necessity of making it even. Also, discussion of education and pension reforms must start immediately. There is no time to hesitate, particularly regarding pension reform.
The three reforms are hard to accomplish without cooperation or support from the majority Democratic Party of Korea. The opposition party must shed populism and anachronistic ideology such as viewing corporate tax cut or tax credit for semiconductor investment as benefits only to the super-rich.
It should stop putting a brake on the Yoon government's policies almost unconditionally. The government proposed a total of 107 bills last year but 87 of them failed to pass the Assembly due to opposition from the Democratic Party. Problem is that the party is unlikely to change this year. In this situation, probably the best policy for the government is to keep pushing reforms on the back of a strong popular support.
Articles by Korea Herald
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