[New Analysis] Kim-Jang reshuffle inevitable for Moon amid pressing economy

The replacement of the nation’s top two economic policymakers had long been speculated as inevitable for the Moon Jae-in administration to keep its policy momentum amid prolonged economic challenges and mounting skepticism over next year.

After months of denying rumors about the reshuffle, the presidential office Cheong Wa Dae on Friday announced the replacements for Deputy Prime Minister and Finance Minister Kim Dong-yeon and presidential chief of staff for policy Jang Ha-sung.

Kim was replaced by Hong Nam-ki, chief of the Office for Government Policy Coordination, and Jang by senior presidential secretary for social affairs Kim Soo-hyun.

The two had frequently appeared to dissent on the nation’s economy, especially the income-led growth initiative, one of the core pillars of Moon’s economic policy vision.

While Jang remained a firm advocate of income-led growth and its affiliated measures -- including the much-disputed legal minimum wage hike -- Kim had repeatedly expressed concerns about the government’s policy drive, citing persistent risk factors that are likely to weigh down the economy, throughout last year.

 

“I agree to expressions of concern, such as an economic slowdown or stagnation, but crisis is an exaggeration as the term should be applied to the 1998 IMF foreign exchange crisis or the 2008 global financial crisis,” Jang said Tuesday in a parliamentary audit session.

“Unfounded talks of an economic crisis would only further intimidate market sentiment.”

The top presidential aide had also displayed confidence that despite early-stage challenges, Moon’s economic policies would lead to tangible results next year.

“We are sorry that many are suffering from the latest economic situation,” Jang said at a ruling party-government meeting earlier.

“(But) our economy has long been stuck in widening income disparity and social polarization, an imbalance that had to be fixed before it is too late.”

Asia’s fourth-largest economy will also keep up a reasonable potential growth rate compared to peer countries, he added.

Jang’s optimism was largely viewed as contradicting recently revised economic outlooks.

The Korea Development Institute, a think tank affiliated with the Ministry of Economy and Finance, on Monday lowered its economic forecast for this year to 2.7 percent from the previous 2.9 percent and that for next year to 2.6 percent from 2.7 percent.

However, former Finance Minister Kim opposed Jang’s view.

“I believe that it was the personal hope of the chief of staff for policy,” Kim said in a separate parliamentary budget committee meeting on Tuesday, citing the prevalence of downside risks.

“Now is the time for all of us to focus on turning our economy’s momentum at all costs.”

This was not the first time that the two top-level policymakers publicly appeared at odds over the direction of key economic policy.

The first apparent trigger was the country’s employment indexes announced in May this year, which marked a record-low level despite President Moon’s vow to make the job situation a top priority and to make visible progress within his first year in office.

It was during that period that Kim started to voice his disapproval of the drastic pace of the minimum wage hike, claiming that it had an impact on employment.

President Moon had dismissed rumors of Kim’s replacement at the time, but speculation built up again recently that new policy chiefs are needed to bring new momentum to Moon’s economic drive.

“I believe that (the president) should consider (the replacement) at some time,” said Rep. Hong Young-pyo, floor leader of the ruling Democratic Party of Korea, in a radio interview last week, days ahead of the Blue House’s reshuffle announcement.

By Bae Hyun-jung (tellme@heraldcorp.com)