Concerns growing over policy detached from reality

Concerns are growing that President Moon Jae-in and his aides have stuck to economic policies detached from the reality of the country’s economy, which is rapidly losing vitality amid deteriorating conditions at home and abroad.

According to government sources, Moon plans to preside over a meeting of economy-related ministers in November for the first time in four months to call for strengthening efforts to enhance economic fairness. Discussion at the planned meeting is set to focus on facilitating “economic democratization” and reforms of the country’s family-controlled conglomerates, or chaebol.

The theme of the meeting seems alienated from the worsening conditions of the economy, which many economists worry is entering a long-term slowdown.

Korea’s industrial output for September posted its steepest on-month fall in 19 months partly due to a decrease in auto and electronic parts production, according to government data released Wednesday. Retail sales for September also dropped at the fastest pace in nine months.

Facility investment rebounded slightly in September after shrinking for six consecutive months since March. It is unlikely that facility investment will continue to increase, experts say, as companies remain pessimistic about future business prospects and feel frustrated by anti-business measures taken by the Moon administration since its launch in May last year.

The business sentiment index for local manufacturing firms dropped 12 points on-quarter to 75 in the October-December period of this year, according to a recent survey by the Korea Chamber of Commerce and Industry.

Lee Seung-seok, an economist at the Korea Economic Research Institute, a private think tank, noted a slump in investment would be inevitable as a result of the Moon government’s measures to raise corporate taxes, reduce tax breaks on investment and slash spending on infrastructure construction.

“Additional restrictions on companies would further decrease investment by dampening entrepreneurship,” said a corporate executive, who requested anonymity, referring to the planned meeting on economic fairness.

Sluggish investment will worsen the country’s unemployment problem.

Despite Moon’s repeated pledges to prioritize job creation, the monthly average number of jobless people looking for work for more than six months rose 7 percent from a year earlier to 152,000 for the January-September period of the year, the highest level since the late 1990s.

Korea’s downward economic indicators, coupled with worsening external conditions, including a prolonged trade war between the US and China and the prospect of continued US rate hikes, have weakened foreign investors’ confidence.

In October, offshore investors net sold more than 4.5 trillion won ($3.96 billion) worth of Korean shares, the largest amount since August 2015.

Moon and his aides do not seem to take worsening economic indices seriously, showing no signs of changing their policy direction.

Moon told reporters Sunday that continuous efforts should be made to shore up the three pillars of his economic policy: income-led growth, innovation-driven growth and a fair economy.

The income-led growth drive, which has been accompanied by a set of pro-labor measures including steep minimum wage hikes and shorter workweeks, has been blamed for driving mostly low-paid workers out of jobs and the reduced earnings of low-income households.

The Moon administration has made no substantial progress in regulatory reforms needed to push ahead with innovation-driven growth. Moon’s call for swift deregulation in a meeting with economy-related ministers in July has brought little changes. Critics say Moon himself has done little to help overcome objections from various interest groups and many ruling party lawmakers to lifting regulatory restrictions across the board.

During a recent parliamentary audit of his ministry, Finance Minister Kim Dong-yeon, who concurrently serves as deputy prime minister for economic affairs, conceded that the government lacked the capability of carrying out sweeping regulatory reforms. Kim, a career bureaucrat, has taken a relatively pro-corporate stance within the Moon administration, confronting other presidential aides with anti-business views.

Critics say the planned meeting on enhancing economic fairness seems intended to deflect criticism of poor results of the Moon administration’s growth policy.

The Korean economy has been sidelined from robust growth this year. The Bank of Korea last month revised down its growth forecast for 2018 to 2.7 percent from a previous estimate of 2.9 percent. The global economy is projected by international institutions to expand about 3.7 percent this year.

Economists note the Moon administration’s dependence on fiscal spending to increase employment in the public sector and create mostly temporary jobs in the private sector would do little to turn around the deteriorating economic situation.

They say it is not time to resort to stopgap measures as internal and external economic conditions are expected to continue to worsen into next year.

Kim Kwang-doo, vice head of a presidential economic advisory panel, deplored in his recent social media posting that there is no sense of urgency in the government despite increasing signs of an economic crisis.

There has been speculation that Moon may dismiss Finance Minister Kim and Jang Ha-sung, presidential chief of staff for policy, within this year to hold them responsible for the poor economic performance over the past year.

Economists say the replacement of top economic officials could hardly be expected to result in improving the economy without Moon’s decision to make fundamental policy changes and keep a group of his aides steeped in anti-market views from dealing with economic matters that should be handled with pragmatism.

By Kim Kyung-ho 
(khkim@heraldcorp.com)