The South Korean economy faces a host of structural challenges that were left unattended as the nation managed an export-led recovery from the Asian financial crisis a decade ago, the journalists told the Feb. 22 symposium.
New President Lee Myung Bak, a former corporate CEO who became South Korea’s first leader from a business background, has promised 7 percent annual growth, and the creation of 3 million jobs as a way to address the country’s widening gap between the rich and the poor.
However, the South Korean journalists said they doubt such rapid growth is feasible given the growing fears of a worldwide slowdown, warning that the divide might even get worse under his growth-oriented economic policy.
Chung Nam Ki, an editorial writer for The Hankyoreh newspaper, said Lee will pursue a small government, tax cuts, deregulation and privatization of state-owned companies.
Lee’s predecessor, Roh Moo Hyun, while trying to open South Korea’s markets through free-trade agreements, pushed simultaneously for economic growth and improved welfare at home, Chung said. However, the result was an increase in unemployment among younger workers and a widening income gap, he added.
Efforts to beef up the competitiveness of small and medium-size companies, which employ 11 million workers or more than 80 percent of the country’s workforce, were insufficient, and these firms were put in even more difficult positions due to an increase in cheap Chinese imports, he noted.
Reduced profitability for these firms prevented wages from rising, weakened purchasing power and thus the country’s domestic demand suffered, Chung said. As a result, the small and medium-size firms that rely on domestic demand languished while export-oriented major businesses prospered, he said.
Lee’s economic policy is based on the assumption that higher growth and more jobs will ease such pain, but since his 7 percent growth target — or even 6 percent growth — appears difficult to achieve given the global slowdown, the economic divide within the country may become even more serious, Chung said.
Jang Gyeong Duk, an editorial writer for the Maeil Business Newspaper, said the direction of structural reforms needed for the South Korean economy is clear — to reduce its dependence on exports, increase domestic demand, and beef up the competitiveness of its small and medium-size firms.
The 1997 Asian financial crisis provided a good opportunity for such reforms, but South Korea failed to seize that opportunity and now it faces the need for even more radical reforms, Jang said.
South Korea managed a relatively quick, V-shaped recovery from the 1997 crisis thanks mainly to two factors — depreciation of its won currency that kept its export industries competitive, and a sharp increase in liquidity inflows that prevented contraction in investments and consumption, according to Jang.
These conditions enabled export-oriented big businesses to increase competitiveness without efforts to upgrade their productivity or restructure their operations, but such a strategy will not be sustainable much longer, he noted.
Lee took office Feb. 25 after winning the December presidential election in a landslide. And his CEO-style leadership will help him score some achievements on the economic front, said Kim Du Woo of The JoongAng Ilbo.
But this leadership style might prove to be a drawback in his relations with the opposition, Kim warned, noting that Lee does not appear to be good at making compromises with opposition parties.
Lee can become a powerful president who can push through his agenda as long as public support stays with him, but public opinion may turn against him if people perceive him to be going too far, he said.
His first political test will come in the parliamentary election in April, where his conservative Grand National Party is forecast to take the majority from the liberal United Democratic Party.
Kim said it would be a mistake to see Lee’s landslide victory in December as a sign of the pendulum swinging from liberal to conservative in South Korean politics. Rather, it was the unaffiliated voters that supported Lee’s pragmatic agenda, he said.
While media polls have forecast a big win for Lee’s party if the general election were to be held immediately, the period until the April 9 vote is long enough for anything to happen in South Korea’s quickly changing political atmosphere, he added.