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Government puts faith in Korea’s New Deal

Jan 01,2009

Though the global financial turmoil seems to have abated somewhat in recent days, the crisis of Korea’s real economy has just begun, most experts say.

Local companies’ investment in facilities is expected to contract this year, the Bank of Korea said this week. Many of the country’s auto plants are now idle and their employees and suppliers are deeply concerned about job losses.

Consumer confidence has fallen to a 10-year low, central bank data showed this week. Sluggish consumption will further dampen companies’ investment.

So how can Korea break this vicious circle?

During the Great Depression, U.S. President Franklin D. Roosevelt launched a series of large-scale government projects called the New Deal between 1933 and 1936 based on the view that the government could spend its way out of the problem. Now, Barack Obama, the U.S. president-elect, plans hundreds of billions of dollars in government spending and tax cuts, which is being called the “new New Deal.”

Korea’s Lee Myung-bak administration has also announced a string of government projects, calling it the “Korean New Deal.”

Among the projects are 10 to be carried out by the Ministry of Land, Transport and Maritime Affairs. They will create 650,000 jobs and have a multiplied economic effect of 79 trillion won ($62.7 billion). They include the early completion of both construction of the Seoul-Incheon canal and the redevelopment of the northern port in Busan.

The most controversial of the 10 projects began on Monday to redevelop four major rivers - the Han, Nakdong, Geum and Yeongsan. Planned spending is 14 trillion won over the next four years. Opposition party politicians and several civic groups suspect the four-river project, including the construction of dams and reservoirs, is a stepping stone for the grand canal project, an apparent obsession of the Lee administration. But the administration insists this project is unrelated.

“If the government wants to avoid being misunderstood, it should listen to critical opinions and gain the public’s confidence by implementing the plan transparently,” Yoon Je-yong, professor of chemical and biological engineering at Seoul National University, wrote in a recent column.

He said the government needs to take “more specific, creative and localized measures,” such as the recovery of damaged streams in urban and rural areas, rather than large, vaguely defined projects. He also said the government should not focus only on construction, but also create jobs in education and other services.

As for the U.S., Obama announced five broad categories of the new New Deal: transportation and traditional infrastructure; school construction; energy efficiency, especially in government buildings; broadband Internet access; and health care information technology. He is putting forward a plan to invest $150 billion over the next 10 years to create 5 million jobs in the clean energy field.

Korea’s Ministry of Knowledge Economy will spend 19.5 trillion won on its “IT/Energy New Deal” projects this year. Among them are the spread of energy-efficient LED illumination; the provision of 12,000 “green homes,” which use mainly renewable energy such as hydrogen fuel cell power for heating and lighting; and investment in state-run energy companies’ facilities.

The ministry also said this week it would pour 111.5 trillion won over the next two decades into developing renewable energy technology including solar cells for photovoltaic power generation and wind farm equipment.

“The year 2009 is the first year of Korea’s low-carbon and green-growth era,” Vice Minister Rim Che-min said in a briefing last week.

Experts agree the current financial crisis could be a good chance for Korea to reform its energy production and consumption structure through government efforts to boost eco-friendly businesses. But some experts say the government should carefully choose which green businesses to boost.

“The government’s current green energy policies are too vague,” said Kim Jeong-in, professor of industrial economics at Chung-Ang University. “As for expansion of power generation through photovoltaic power plants and wind farms, the essential technology needed for these facilities is dominated by advanced countries. Accordingly, the expansion would not lead to a great increase in employment and other economic effects.

“On the other hand, the improvement of energy efficiency in buildings can be a very good project,” he continued. “The work for building reform projects has great spillover effects into different industries, as it can be applied to the whole building. Accordingly, such projects can create jobs in the short term.

The United Nations Energy Program said improving the energy efficiency of buildings as well as green car development are the most effective eco-friendly projects for creating jobs.”

He added that the government needs to take more interest in biomass, or biological material that can be used as fuel or for industrial production, subterranean heat and other renewable energy sources and related technologies. Korea has more room to catch up with advanced countries in the green energy business in these areas, he said.

Meanwhile, the Ministry of Culture, Sports and Tourism said this week it would create about 18,000 new jobs by spending 174.5 billion won on public art, culture and sports projects in an “Art New Deal.”

Young, jobless artists will be employed by the government to teach art to low-income people or to create murals and other public artworks to improve the environment in impoverished inner-city areas.

The ministry also plans to restore historical and cultural resources along the four major rivers to be developed in an effort to attract more tourists from abroad.



By Moon So-young Staff Reporter [symoon@joongang.co.kr]

Caption: Volunteers create murals in an inner-city area of Busan. The government will employ young artists for such works this year through its “Art New Deal.”

The scheduled construction of the Seoul-Incheon canal will be advanced as one of the Land Ministry’s 10 New Deal Projects.

A photovoltaic power plant in Sinan, South Jeolla, is representative of the renewable energy that the government will pour 111.5 trillion won into over the next 20 years.

As part of the IT/Energy New Deal, energy-efficient LED illumination will become more commonplace.

The Land Ministry’s 10 New Deal Projects also include the early completion of the redevelopment of the northern port in Busan.



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