The Ministry of Strategy and Finance issued a statement on Wednesday to refute claims that expansionary economic policies promoted by Finance Minister Choi Kyung-hwan to boost the economy are confusing the market.
The statement came after the Wall Street Journal published an article titled “South Korea’s Confused Growth Plan” on Monday.
The U.S. business daily said Choi Kyung-hwan’s road map for growth, dubbed “Choinomics,” is as disappointing as Japan’s “Abenomics” has proven to be.
The article criticized Choi’s deregulation-driven housing policy, claiming that eased mortgage regulations may increase the nation’s already-mounting household debts, which will lead to a hard landing of the slumping economy.
In response to the claims, the Finance Ministry said in its statement that the relaxed regulations on home loans may increase total household debt, but would also give borrowers lower-interest mortgage loans.
Since Choi has eased mortgage borrowing limits, the ministry said high-interest mortgage loans from second-tier financial institutions like savings banks dropped to 0.1 percent in the August-September period, from 0.5 percent in the first half of this year.
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Deputy Prime Minister and Finance Minister Choi Kyung-hwan. (Yonhap) |
Meanwhile, bank loans for home buys have risen to 4.1 percent from 1.4 percent during the same period.
The minister’s push for wage hikes was also refuted as pay raises without improvements in productivity may sap companies’ competitiveness.
The ministry explained that the policy is structured to lead companies to voluntarily increase wages by giving them incentives. Increased income would then increase household spending, the ministry said.
The Finance Ministry also refuted the WSJ’s claim that tax incentives for companies to raise investments may risk weakening Korean firms through the creation of overcapacity.
“Korean companies’ local investment has been inadequate, despite the growing demand for Korean products in overseas markets,” the ministry said.
Facility investments, including production line expansion, in Korea dropped to 1.5 percent in 2013 from 3.8 percent in 2000, whereas overseas production rose to 18 percent in 2012 from 6.8 percent in 2005.
Regarding the 10 percent punitive tax on high-earning companies that hold on to too much of their profits, the government said its purpose was not to penalize conglomerates but to enhance the flow of corporate profits into households through investment, dividends and wages.
Regardless of continued dispute over the expansionary economic policy, in a meeting with Korean and business communities in Seoul on Wednesday, the finance minister hinted he would maintain the policy direction.
“As the nation’s recovery momentum is weakening on sluggish investment, the government will expedite regulatory reforms and increase investment opportunities,” he said.
By Shin Ji-hye (
shinjh@heraldcorp.com)
