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South Korea's agenda for 2014
Publication Date : 31-12-2013
Last year was a tough one for South Korean President Park Geun-hye. The top priority for the nation’s first female president in her first year in office was to revitalize the sagging economy to improve people’s lives. But her performance on these fronts was less than impressive.
Economic growth in 2013 is estimated at 2.8 per cent, higher than 2 per cent in 2012 but still much lower than the nation’s potential growth rate of around 4 per cent. The government managed to prevent the economy from getting stuck in a low-growth trap but failed to generate a stronger recovery.
As such, reinvigorating the economy should remain at the top of Park’s agenda for this year. First of all, she needs to ensure that the economy grows at its full potential. Fortunately, global and domestic economic conditions are forecast to improve, helping Korea maintain the momentum of its recovery.
This year, the focus of economic recovery efforts should be placed on stimulating domestic consumption. For this, the spending power of households needs to be bolstered. One way to increase household disposable income is to create more jobs for people who are economically vulnerable, such as young people, women and senior citizens.
At the same time, it is necessary to help families cut their expenditures on educating their children and repaying mortgages. The best way to reduce household spending on education is to encourage high school graduates to get a job first and then think about pursuing a university education.
To reduce mortgage burdens on households, one desirable option is to introduce longer-duration, lower-cost mortgages and allow households that have taken out high-cost mortgages to refinance their existing debts.
Helping families reduce their debt servicing costs is all the more important as the global economy is shifting from a low interest rate environment to one based on high interest rates, following the US Fed’s recent decision to wind up their quantitative easing.
Given that the nation’s household debt threatens to break the 1,000 trillion won mark, any rise in interest rates would squeeze family finances, adversely affecting the nation’s economy.
This year’s job creation target is 450,000. To attain the goal, there should be more determined efforts to remove or soften regulations in service sectors with a high potential for creating jobs, including education, health care, tourism and financial services.
Park should also accelerate Korea’s transition to a creative economy where venture companies with creative ideas and technologies prosper. These firms are more efficient at creating jobs than large corporations.
Last year, she endeavored to lay the groundwork for a well-functioning venture ecosystem. This year, she needs to ensure that this system takes deep root and begins to bear fruit in the form of adding jobs to the economy.
Whether the employment target is attained or not depends to a large degree on how a set of inter-related labor issues are sorted out. They include shortening weekly work hours, reforming the wage system, extending the retirement age, and converting irregular workers to regular status.
On the reform front, Park initiated a major campaign last year under the theme of “normalising the abnormal.” It is aimed at rectifying abnormal or irregular practices that have been handed down from the past.
One primary target is poorly managed public organizations, such as Korea Railroad Corp., which are highly indebted but nevertheless recklessly spend taxpayers’ money on employee welfare.
Park’s commitment to eradicating unreasonable practices was well illustrated by the government’s principled response to the protracted walkout by rail workers. Denouncing the striking workers for trying to protect their privileges, the government declared it would not compromise simply to reduce the damage and inconvenience caused by the unwarranted industrial action.
In seeking to restore the economy and reform abnormal practices, Park should never forget that she cannot move forward without cooperation from the main opposition Democratic Party.
But throughout last year, the ruling Saenuri Party had fought a fierce battle with the DP over allegations that the National Intelligence Service and other state organizations had interfered in the 2012 presidential election.
Park also responded to the DP’s attacks in a principled manner, rejecting most of its demands. But politics is a game that two can play. The DP retaliated by refusing to pass reform bills submitted by the government to implement Park’s campaign promises.
This year, Park needs to maintain a working relationship with the opposition party. She needs to talk with opposition leaders more frequently. This will also help her avoid the criticism that she lacks the ability to communicate with others.
It is not just Park who needs to behave differently. The opposition party also has to change. Last year, all it tried to do was to hold the government and the National Assembly hostage over the NIS issue. It impeded the government’s desperate efforts to revive the economy by paralyzing the Assembly.
The party cannot avoid criticism for further slowing the already fragile recovery of the economy. It’s no wonder that its approval rating is stuck below 20 per cent. If it fails to clean up its act, it risks being outperformed in the June local elections by the new party being promoted by independent lawmaker Ahn Cheol-soo.
Meanwhile, Park will have to pay more attention to North Korea this year. The Pyongyang regime has become more politically unstable following the recent purge of Jang Seong-thaek, the uncle of its young leader Kim Jong-un. It might attempt armed provocations to heighten tension and conceal its instability.
While stepping up preparedness for possible provocations, Park needs to reinforce cooperation with the United States and China to be ready to deal with any eventualities in North Korea.
The growing instability of the reclusive state makes it all the more urgent to dismantle its nuclear weapons. This year, the participants in the six-party talks on the denuclearization of North Korea should ratchet up pressure on Pyongyang to give up its atomic weapons.