President’s ‘474’ road map coming out today
Each numeral represents one of three goals. The first “four” stands for 4 percent annual GDP growth for the Korean economy. The “seven” is an abbreviation for Park’s wish to bring Korea up to an overall employment rate of 70 percent. And the final “four” is another abbreviation, this time for Korea reaching per capita income of $40,000 during Park’s presidency,
To realize these goals, Park announced that her economic teams, including the Ministry of Finance and the state-run Korea Development Institute, would be ironing out a blueprint for a three-year economic plan, which she plans to release today during a ceremony celebrating her second year in office.
Since the announcement in the new year, work on the three-year plan has been kept under tight wraps. No government official, including Finance Minister Hyun Oh-seok, has leaked the plan.
The basic concept is that the plan will aim to strengthen the nation’s economic structure, starting with the normalization of public institutions, finding new growth engines for the country’s future and rebalancing the economy to expand the domestic market and lessen Korea’s heavy reliance on exports.
This is not the first time an administration has come up with such grand economic ambitions. The moment Park announced her 474 plan, everyone was reminded of the economic project announced by Park’s predecessor Lee Myung-bak that had three similar numerals: 747. In Lee’s case, the initial seven stood for the goal of 7 percent annual economic growth; the four, as in Park’s plan, stood for $40,000 per capita income. The final seven represented Korea becoming the world’s seventh-largest economy.
Lee wanted to achieve those three goals in his term, but he failed in all three - not surprisingly considering the onset of the global financial meltdown just months after he took office. Lee is given credit for Korea emerging from that meltdown faster than just about any country.
Park’s 474 plan seems closer to being realized. But doubters are already saying they won’t come true.
Former Prime Minister Chung Un-chan, who was an economist at Seoul National University, is one skeptic. During a radio show on Jan. 10, Chung said Park achieving the 474 goals within her remaining four years as president will be almost impossible.
“Currently, per capita income is $24,000,” said Chung. “How could this be raised to $40,000 with only 4 percent potential growth?” Chung also said that even 4 percent was overly optimistic when the economy has been growing from 2 percent to 3 percent in recent years.
As doubt spreads, Blue House advisers and officials from the Finance Ministry said the aim is not to actually raise the per capita income to $40,000 by the end of this administration, but rather to lay a foundation to achieve the goal in the near future.
A 70 percent overall employment rate probably has a better chance of being achieved, although experts say it won’t be easy. To attain this goal, the nation’s growth rate needs to be at least 5 percent to 6 percent. The government, as well as many private institutions, are projecting growth of slightly below 4 percent for this year.
There are currently mixed reviews for Park’s economic achievements in her first year.
Although the Lee administration is credited for acting fast and helping Korea pull out of one of the worst global meltdowns in decades - it hit extravagant growth of 6.3 percent in 2010 - the economy has been falling back ever since. Park took over the economy after its growth fell to 2 percent in 2012. Last year, the economy rebounded with 2.8 percent growth, which hit the central bank’s target.
In numbers, the Korean economy has fared well under Park. In trade, Asia’s fourth-largest economy saw its exports expand 2.2 percent from the previous year to report an all-time record of $559.7 billion. This was an achievement made even with a depreciated Japanese yen, which was pushed by the administration of Japanese Prime Minister Shinzo Abe. His policies are nicknamed Abenomics.
If the momentum continues, it’s likely that exports could break the $600 billion barrier. With the help of widening exports, Korea’s current account surplus also reached new heights last year: $70.7 billion. At the same time Korea’s overall trade has remained above $1 trillion for three consecutive years.
Furthermore, Korea’s exports reported the third-sharpest annual growth in the world, trailing behind Hong Kong with 6.6 percent and China with 6.5 percent, according to a recent report by the Korea International Trade Association. When you compared last year’s growth with 2009’s, to see how recovery from the global financial crisis went, Korea’s was the second highest after China’s. China reported growth of 12 percent while Korea trailed behind with 9.6 percent.
But what really stood out last year was that although conglomerates still contribute most of the nation’s export growth, small and midsize companies’ significant increases helped the overall expansion.
While exports of large groups in the first 11 months of last year only inched up 0.5 percent from a year earlier, small and midsize companies, which now account for nearly 33 percent of the nation’s exports, saw their exports grow 4.3 percent during the same period.
At the same time, the Korean government has continuously build up its safety net against possible detrimental impacts from abroad.
Last year, foreign reserves hit a new high of over $345 billion; the seventh-largest held by any country.
And the Korean central bank has been expanding its bilateral currency swap arrangements with other economies, including Australia, just in case volatility hits the international markets.
The domestic market hasn’t been bad, either. Although spending in the private sector didn’t grow as sharply as it did in 2010, it did expand from 1.7 percent year-on-year growth in 2012 to nearly 2 percent last year. Facility investment by companies also increased last year.
Companies’ facility investments in the last three months of the year expanded an impressive 9.9 percent.
There is growing optimism that recent deregulations by the government have already improved business conditions. As a result, the private sector could increase investments that will lead to more hiring and will eventually stimulate the domestic market.
“The government in 2013 has already invested 16.5 trillion won to support small businesses,” said Yoo Sin-ik, an analyst at HMC Securities. “Additionally, companies have been increasing their shipments of products to domestic markets.”
The improvement in businesses has also affected the employment market.
Compared to 2012, nearly 400,000 additional people were employed last year.
By the year’s end, employment of people between the ages of 15 and 64 amounted to 64.4 percent, up from 64.2 percent in 2012. This is the highest the overall employment rate has climbed since data was compiled. This year, the government is targeting a 65.2 percent employment rate.
Noticing the positive changes since late last year, the government has started to act aggressively.
This includes stricter management of public institutions such as debt restructuring, realizing a more creative economy by offering stronger support for start-ups, and encouraging employment of women and retired employees.
The government has also lifted regulations on the real estate market, which has been in the deep freeze since 2008. Now there are concrete signs of thawing. The thaw is even being seen in redevelopment projects that have been put on hold for years.
Yet there are some wild cards that could throw spanners in the Park administration’s ambitions.
One is the struggling financial industry. Despite growing optimism, the stock market remains flat and has failed to move upwards to the 2,000 mark.
Since the beginning of the year it has remained within the 1,940 and 1,970 level.
Recent blunders in the financial markets aren’t helping and brokerages are struggling to get their investors into the market.
“Foreign investors have been dumping industrial and durable goods shares,” said Ma Ju-ok, an economist at Kiwoom Securities. “But the fact that they continue to purchase IT shares, including computer chips and display makers, indicates that they are not completely off the Korean market.
The lukewarm stock market has even led investors to seek out gold and other safer assets.
On a larger macroeconomic note, the general public isn’t feeling the buoyancy reflected in the positive economic figures the government has unveiled.
Many people remain skeptical over the government’s achievements.
Some say this is because greater exports or a larger current account surplus doesn’t lead to more job opportunities.
The problem is that most jobs opportunities are going to older people and not the young, who are the main factor in boosting the domestic market. In fact, the overall employment rate for people between the ages of 15 and 29 was 39.7 percent last year. Employment for those aged 55 to 64 was 64.3 percent.
Another problem is that half of all employees are nonregular or nonsalaried workers. Temporary workers generally are paid less and don’t get benefits.
But many will be watching the details of the president’s soon-to-be-announced three-year plan, particularly since Park’s economic team seems to be going for broke with it, as emphasized by Finance Minister Hyun last week.
During an economic ministers’ meeting held at the government complex in Sejeong last week, Hyun stressed that this could be the last chance for the Korean economy to advance beyond the mere survival level.
“For our Korean economy to leap to the next level, we have to boldly ditch successful equations from the past and make efforts at groundbreaking changes in our economic structure,” the finance minister said. “But we don’t have much time. The next three to four years could be the last opportunity given to our economy.”
With the government planning to focus its three-year plan on enhancing the domestic market, there is growing speculation that the biggest industries to benefit will be inward looking, including local retailers.
BY LEE HO-JEONG [firstname.lastname@example.org]