Park focuses on reforming economy amid global slowdown

By Lee Joon-seung SEOUL, Feb. 22 (Yonhap) -- The Park Geun-hye administration's economic agenda has been focused on reforming the national economy over the past three years so it can become more competitive and better cope with its rivals on the international stage, observers said Monday. Despite such efforts, Asia's fourth-largest economy has been dogged by a string of unfavorable factors such as a global economic slowdown, a plunge in international oil prices and the outbreak of Middle East Respiratory Syndrome (MERS), which seriously hurt consumption. As President Park is poised to start her fourth year in office, the government plans to continue its drive to reform the country's labor, financial and educational systems. Experts stressed that concentrating on reforms is critical at this juncture because growth is being hampered by the worldwide economic downturn, adding that change can also help Seoul deal effectively with unexpected developments like the recent plunge in crude oil prices. Lower crude prices negatively affect the sale price of refined petroleum products and petrochemicals, which are a key export item for South Korea. Reflecting this, South Korea's outbound shipments, its traditional growth engine, backtracked last year, with the poor showing causing its economy to grow just 2.6 percent, down from a 3.3 percent expansion the previous year. On South Korea's government debt that can pose considerable challenges for policymakers, observers said the total, which hit 500 trillion won (US$405.5 billion) as of July 2014, surpassed the 600 trillion won mark this year. Household debt, which stood at 1,166.4 trillion won as of late September, is forecast to hover in the 1,200 trillion won range this year. Such developments are raising concerns that South Korea's growth may be locked in the 2 percent range, as the country's population is aging at a rapid pace. An older population invariably leads to slower growth. Many economists and government officials said the slowdown in China, which accounts for roughly a quarter of outbound shipments, is fueling worries that exports may again contract, even though the finance ministry expects a rebound from negative growth in 2015. If such developments take place, the country will not be able to generate good jobs for young people, and there is a risk that South Korea's per capita income may lose ground, which has been the case in Spain. Despite such challenges, local economists said that while unexpected developments like MERS, the sinking of the Sewol ferry and the slowdown of Chinese growth affected local growth, the South Korean economy did alright compared to many other countries. The government received high marks for overhauling pensions for public sector workers and lowering the level of debt that must be managed by the state. Park's economic team forged ahead with a wage peak system for all public sector workers last year. Last year some 90,000 new companies set sail, with the inflow of foreign direct investment surpassing the $20 billion mark for the first time ever last year. Even in the area of job creation, the employment rate for people between 15 through 64, as measured by the Organization for Economic Cooperation and Development, reached a record high 65.7 percent last year. Data also showed that last year's "disappointing" growth figure was the third-highest among countries with roughly the same economic size and population. Among export-oriented countries, Seoul's economic growth outpaced rivals such as Taiwan, the Netherlands and Belgium in 2015. Lee Jun-hyup, a research fellow at Hyundai Research Institute (HRI), gave the government high marks for pursuing timely short-term economic stimulus programs that helped keep the country's growth momentum alive in the past few years. "Last year's stimulus measures, like a cut in excise taxes for products like cars and the extra budget, were well executed," the expert said. This view was shared by Oh Jung-gun, a professor of the financial IT department at Konkuk University, who said the government structural reform drive and the signing of the free trade agreement with China were meaningful achievements. On the other hand, the HRI researcher and Oh both said unemployment among young people and household debt concerns need to be addressed in a careful manner. The wage peak system has yet to prove that it can create jobs for young people, while arguing that moving too quickly to tackle household debt could lead to more complications down the line, they added. "The bulk of debt has been acquired to cope with the rise in rent and by small and medium enterprises," Oh said. If such capital flow is cut off, it can make things very hard for ordinary people that can lead to negative consequences for private spending that propped up growth and the national economy as a whole, he said. yonngong@yna.co.kr (END)