Makeshift action leads nowhere

According to its outline for next year’s economic policy, the government aims to achieve both economic recovery and structural reform. It targets growth of 3.1 percent and inflation of 1.7 percent for next year, with a greater focus on stimulating domestic demand than exports.

Under such aims, the government will advance fiscal spending in the first half, regularize government-sponsored retail sales events and promote activities to attract Chinese tourists. It will have the National Pension Fund increase investment on nontraditional assets like real estate, infrastructure and private equity funds, and lift greenbelt zones to build 50,000 homes for rent. It will create regulation-free zones and expand finance loans for exporters.

The government urgently needs to revive the economy so that it can run at its potential above 3 percent. It fixed its inflation target at 2 percent to fend off deflationary risk. But these policies are overly optimistic.

Next year is expected to be more difficult for the Korean economy. The rate hike in the United States and the slowdown in the Chinese economy could weigh down global demand. Demographic factors from a low birth rate to a rapidly aging population could lead to a structural slump in domestic demand. The outline does not have proactive ideas for these downside risks. If fiscal easing measures do not help stimulate the economy, the government would fall into the same tired routine of needing supplementary funds later in the year due to a shortage in tax revenue. Its pledge to achieve 5 percent in the real growth rate that counts toward inflation could send the wrong message to investors and the corporate sector.

Despite its ambitious goals, these measures are not a means to restore and restructure the economy. The commitment toward reforms is lacking. It does not end when the bills designed to reform the labor, finance, education and public sectors pass in the National Assembly. There must be a concrete action taken to bolster industrial competitiveness based on a new framework. The government must use both carrots and sticks to promote corporate investment and entrepreneurship. The new outline also does not show guidance in realigning the industry to stay competitive against the rise of China or in rationalizing ailing industries dominated by zombie corporations.

Concerns are mounting that the Korean economy could indefinitely stagnate due to weakening demographic resources and new growth industries. The government must come up with a radical way to increase innovation among enterprises. Makeshift actions do not ensure sustainable growth.

JoongAng Ilbo, Dec. 17, Page 38