Yoon’s economic assets

Kim Dong-ho
The author is an editorial writer of the JoongAng Ilbo.

Can president-elect Yoon Suk-yeol fully revive the economy? He has a tough job ahead, given the state of the country he inherits.

Public finances have seriously deteriorated compared to five years ago when President Moon Jae-in took office. On a balance sheet, assets are comprised of debt and capital. On the liability side, the country’s debt-to-GDP ratio was 36 percent five years ago. It will reach 50 percent by the end of this year and hit 60 percent in three years due to piling debt.

Leftover income after a company pays salaries and taxes is set aside as capital. There will be nothing to reserve if growth stops. Korea’s growth rate has been losing 1 percentage point every five years after peaking under the Park Chung Hee administration. Currently, the rate is near zero. The country’s growth engine is grinding to a halt.

Korea’s assets are also in parlous shape. Companies that are our core national assets have lost energy. The Federation of Korean Industries (FKI) — the lobbying group for large companies — has become nearly invisible after it was embroiled in a bribery scandal with the former conservative government. In the meantime, the militant Korean Confederation Trade Unions (KCTU), which credited itself for helping Moon get elected president, has dominated Gwanghwamun Square with rallies even during the Covid-19 pandemic. An umbrella union representing courier workers has raided and illegally occupied the headquarters of CJ Logistics for 19 days.

The real estate market is a mess. Prices of apartments in Seoul have doubled, and their heavily indebted owners face a surge in interest rates on top of heavy taxes. Experiments with progressive policies have wiped out decent jobs and put the property market in a state of chaos. Although Korea is ranked 10th as a macro-economy, the state of that economy has greatly deteriorated over the last five years.

On Monday, President-elect Yoon Suk-yeol talks with business leaders to discuss challenges facing the Korean economy at the office of his transition committee in Seoul. [KIM SANG-SEON]

The external front has become more perilous. The U.S. has lifted interest rates from the zero range, which could accelerate monetary tightening in Korea. Mortgage rates are expected to reach 6 percent. The Russian war with Ukraine on top of a power contest between the U.S. and China has further shaken the global supply chain. The value of the Korean won is skidding versus the U.S. dollar and oil prices are soaring. Despite strong exports in mainstay products like semiconductors and automobiles, our trade balance is turning red due to expensive fuel imports. The export-reliant economy is in jeopardy.

To win the election, Yoon made campaign promises that could cost a minimum of 266 trillion won ($218.5 billion) over his five-year term. He vowed to expedite compensation to merchants for their business losses from social distancing measures the moment he enters office. That spending could cost 50 trillion won. He pledged to raise monthly salaries for military conscripts to 2 million won. His campaign pledges call for stringent restructuring. The job front could be a more serious challenge. Job numbers will sharply deteriorate if he does away with the tax-financed public-sector jobs that increased under the Moon government. A promise to supply 2 million housing units could also require huge spending.

There are few glimmers of immediate hope for the economy. Lives won’t improve just because a new president takes office. Korea has passed that stage. During the industrialization period of Park Chung Hee, construction of expressways and financial assistance to companies led to growth. Overseas markets expanded through normalization of ties with the former Communist Bloc and highway and airport infrastructure was completed under President Roh Tae-woo. A number of free trade agreements took place under President Lee Myung-bak. Moon’s contribution was the damaging income-led growth policy.

The incoming government must end the anti-business sentiment and rationalize regulations to reactivate Korea’s growth engine. Yoon promised growth led by the private sector during his meeting with business organization chiefs. In a business-friendly environment, Korean companies will return home from overseas.

The country has national potential. Yoon must leverage our assets and build their value. He should plant the seeds so the young generation can enjoy the fruits one day.