Economic policymakers here have lately dismissed rising concern over the country’s slowing economy, calling such worries overblown.
In the latest rebuff, Finance Minister Yoo Il-ho claimed this week that some skeptics have wrongly interpreted indicators to paint a gloomy picture of the Korean economy, which he said has made remarkable progress.
Finance Minister Yoo Il-ho
At a meeting of economy-related ministers, he recalled that Korea last year achieved the highest-ever sovereign credit rating and recorded the third-fastest growth among 13 major countries that have a population of more than 20 million and a per capita income of over $20,000.
Observers view his comments as aimed at preempting the opposition parties’ likely attacks on the economic performance of President Park Geun-hye’s government in the lead-up to the general election in April. They noted that Yoo himself had shied away from taking a candid look at the country’s economic situation.
Government figures released last week showed that the youth jobless rate had risen to a record high of 12.5 percent in February. The overall unemployment rate stood at 4.1 percent last month, up 0.7 percentage points from a month earlier.
Korea’s unemployment rate has remained lower than that of Japan for more than a year, a trend seen for the first time since the country was hit by a foreign exchange crisis in the late 1990s. Many economic commentators here view this phenomenon as a signal that the country is becoming less vital in economic activity than Japan, which is struggling to get out of two decades of recession.
Korea is set to see its exports decrease on-year for 15 straight months in March, with figures from the Korea Customs Service showing its overseas shipments falling by nearly 20 percent from a year earlier for the first 20 days of this month.
Government policymakers hope to boost the country’s economic growth rate, which remained at 2.6 percent in 2015, to above 3 percent in 2016. But economists at home and abroad view the target as out of reach as global growth is expected to decelerate from last year’s 3.1 percent.
According to the Korea Development Institute, a state-run think tank, the country’s growth rate is projected to be around 2.5 percent this year if the world economy grows at the same pace as last year. Morgan Stanley predicted in its recent report that Korea’s growth might slow to 1 percent in the worst-case scenario.
“It is time for Korea to focus on boosting its growth potential even at the risk of worsening short-term records,” said Kim Seong-tae, a KDI researcher.
According to the Organization for Economic Cooperation and Development, the country’s potential growth rate, which stood at 4.6 percent in 2000-2007, is estimated to plummet to 1.6 percent in 2031-2060, below the OECD average of 1.8 percent.
Structural reforms and deregulation will continue to be needed to strengthen the fundamentals of the Korean economy in the long run.
Economists also raise the need for Korea to be more active and creative in looking for ways to reinvigorate its economy, apart from monetary policy tools, which are reaching their limit.
In a recent commentary, Lee Je-min, professor emeritus of economics at Yonsei University, suggested expanding fiscal spending, in particular renovating outdated bridges, roads, railways and ports. According to a KDI study, more than 10 percent of 21,053 infrastructure facilities across the country were built over three decades ago.
As a way of financing these projects, which Lee said would be less controversial than populist welfare programs, he proposed imposing levies on financial and currency transactions. He said it could also be possible to reach a consensus among individual taxpayers and corporations on how to share the additional tax burden for infrastructure renovation.
What should also be considered in seeking to revitalize the economy is that widening income inequality will dampen economic vitality. In an economy in which wealth is concentrated in a small number of large corporations and rich people, loosened monetary policy, such as asset purchases by central banks, tends to serve their interests and brings little benefit to the middle and lower class.
It is against this background that some pundits have proposed what is known as people’s quantitative easing, which means depositing the same amount of money at bank accounts of all individuals.
It is indisputable that discontent and conflict over widening inequality will undermine economic growth as well as social stability. Korea is not exempt from such concerns. A recent report by the International Monetary Fund showed that the income share of its top 10 percent earners was at 45 percent in 2013, the highest among 22 Asian countries surveyed.
With the ratio of its national debt to gross domestic product projected to rise from 37 percent in 2014 to 169 percent in 2060, Korea may find it difficult to maintain welfare benefits at the current level that already falls far short of standards in major advanced countries.
Some experts say that the upcoming general election could serve as an occasion to undertake a sincere debate on raising taxes on the presumption of curtailing inefficient welfare programs.
By Kim Kyung-ho (khkim@heraldcorp.com)