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Park Geun-hye's new economic vision
Publication Date : 27-02-2014
South Korean President Park Geun-hye has marked her first year in office by unveilling a new economic vision. In a nationally televised news conference Tuesday, she sketched out an ambitious three-year plan aimed at putting the economy back on a high-growth path.
Park painted a rosy picture for the economy. Through the reform package, she hoped to raise Korea’s potential growth rate back to the 4 per cent range, increase its annual per-capita income beyond $30,000 and boost the employment rate to 70 per cent - all by 2017.
Hyundai Research Institute recently estimated the nation’s potential growth in the 2008-13 period at 3.5 per cent, a sharp fall from the 4.6 per cent between 1998 and 2007. For an advanced economy like Korea, it is not easy to reverse the downward trend in growth potential.
Yet without raising the potential growth rate, Korea cannot expect to bridge the gap in per-capita income with wealthy countries such as the United States and Germany.
To attain her economic goals, Park suggested three strategies: strengthening the fundamentals of the economy, making Korea a creative and dynamic economy and pursuing a balance between exports and domestic demand.
To implement these strategies, the government has drawn up a total of 100 action plans. Notably, the package included a plan to ease regulations on development of greenbelt areas to spur corporate investment and facilitate housing construction.
It also proposes three large-scale tourism complexes in Yeongjongdo Island and Songdo of the Incheon Free Economic Zone and the Jeju International Free City as Korea’s answer to Singapore.
The package also urges policymakers to consider adjusting the loan-to-value and debt-to-income regulations to boost the real estate market, which holds the key to spurring domestic consumption.
The government has thus far refrained from softening the LTV and DTI rules, as doing so would increase household debt. The move to adjust them indicates its resolve to keep up the recovery momentum in the housing market.
The centerpiece of the package is the government’s plan to invest 4 trillion won for the coming three years to create a well-functioning venture ecosystem. As the vision to create a creative economy depends much on the prosperity of the venture sector, the government is keen to build a system that can provide support to venture firms at any stage of development in their life cycle.
The package also included many other bold initiatives. If all these schemes are carried out as planned, Korea will be able to become a stronger and more resilient economy, but it will not be easy to implement the blueprint.
In the first place, the government has laid out too many action plans. It may have sought to address all the major problems facing the economy. But it could be distracted if it tries to tackle too many problems at the same time.
A bigger problem is that the government will face difficulty in implementing many of its plans unless Park improves relations with the main opposition Democratic Party.
DP leader Kim Han-gil slammed Park for virtually scrapping many election pledges related to welfare and economic democratisation. He also criticised the three-year plan for lacking concrete measures to improve people’s lives.
Kim’s response suggests that the government can hardly expect cooperation from it on matters that require revision or enactment of laws.