Park stresses parliament's role in tackling economic challenges

President Park Geun-hye's emphasis of the parliament's role in overcoming South Korea's economic challenges is widely seen as reflecting her sense of crisis over Asia's fourth-largest economy struggling with weak exports, sluggish domestic demand and mounting external uncertainties.

In her New Year's address to the nation, Park said that with the rise of global economic uncertainty, Seoul's only option at this juncture is to push forward sweeping reforms in the labor, financial, public and education sectors that can boost the country's overall competitiveness.

Speaking a week after North Korea conducted what seems to be its fourth nuclear test, the chief executive said the economy is confronted with serious challenges.

The government estimates that the economy grew just 2.7 percent on-year in 2015, a downgrade from a 3.3 percent forecast made in July. For 2016, policymakers insist 3.1 percent growth is possible, although private economists say growth in the upper 2 percent range is a more realistic target.

The main reasons for sluggish growth are a drop in exports and weaker than expected domestic consumption. South Korea's outbound shipments contracted 7.9 percent on-year to $527.2 billion last year. Last year marked the first time since 2011 that two-way trade dropped below the $1 trillion mark.

"The country is facing an emergency situation," she said.

"China's stock market crash is fueling worldwide worries that is impacting South Korea."

Park stressed that failure to implement reforms or any backtracking on commitments can lead to the economy losing steam that could have grave consequences.

"The main reason why the International Monetary Fund and the Organization for Economic Cooperation and Development gave high marks to South Korea in their 2014 economic assessment is because of our drive to make critical changes," she said.

The president said if the country fails to make headway now, it could face a downgrade in the country's credit rating that can shock the system.

The president's stance is in line with views from market watchers who say that South Korea is faced with such external challenges as a U.S. move to raise interest rates, China's economic slowdown, plunging crude prices and their fallout on emerging markets.

Moody's Investor Service, which recently gave South Korea the highest ever Aa2 rating, also made clear that lack of progress on reforms can affect the country's sovereign rating that will affect investment and financial costs.

Against such a backdrop, Park urged lawmakers who have been sitting on key reform bills to think of the "greater good" and pass critical reform bills by the end of January.    

The country's opposition parties have maintained that many of the reform bills advocated by Park could actually worsen the employment situation for many workers. They have argued certain bills may only benefit big businesses without doing much to help the overall economy.

Of the reform bills, the president said that it is extremely important that the economic vitalization bill and service industry reform legislature are approved as soon as possible.

The economic vitalization bill can allow a reshuffling of struggling industries before they become insolvent, while the service industry bill could create some 690,000 new jobs by 2030 and push up the country's growth potential by 0.2-0.5 percentage points.

"The service sector bill has been held up in parliament for 1,474 days," she argued, calling for its swift passage.

Other bills related to labor reforms that can make it easier to fire and hire workers are an integral part of the deal among government, business and labor representatives with unemployment among young people reaching a record high 9.2 percent in 2015. This is much higher than the national jobless rate of 3.6 percent last year.

While there is opposition in regards to the labor reform bill, all sides need to respect the landmark Sept. 15 pact reached at the tripartite meeting represent by workers, management and the government, Park said.

"Failure to again pass the bill will result in public backlash," she warned.

Touching on Park's address televised live nationwide, local economists acknowledged Park's steadfastness in regards to change, while taking issue with the lack of details to change the minds of lawmakers.

"The president's call is in line with efforts needed to push up the country's growth potential," said Lee Geun-tae, a senior researcher at LG Economic Research Institute.

He, however, pointed out that while Park and her administration has pushed for change, both have been weak on details about how the changes can take place.

"Besides striving to reach short term targets, the government needs to find new industries critical for sustainable growth," he said.

Other like Kim Jung-sik, an economics professor at Seoul's Yonsei University, said that Park's resolve was clearly visible in the address that can send a stirring signal to government bureaucrats.

He, however, said the address was short on details. 

The expert added that at this point in time, it may have been a good idea to have also touched on concerns related to capital flight and exports that directly relate to the economy. (Yonhap)