Resuscitating the lethargic economy is key
Published: 04 Dec. 2023, 19:40
Lee Sang-gun
The author is an economics professor at Sogang University.
Ihn Yo-han, who is responsible for overhauling the minority People Power Party (PPP) within 60 days, has drawn much spotlight with his unconventional rhetoric and ideas. That storm might’ve been what the ruling party needed to shake off its lethargy. Ihn advised party leaders not to run in next April’s parlimentary elections or bid in conservative-hostile constituencies. He told President Yoon Suk Yeol’s key confidants to surrender their bids and heavyweights dominating seats in conservative bases to step back. He demanded that the party reach out to the young generation. To conservative voters, it has been comforting to see the Libero join the field as a creative anchor after the PPP’s crushing defeat to the majority Democratic Party (DP) in the by-election to head Gangseo District in Seoul.
Regardless of potential change, the PPP cannot count on a win in the upcoming election. First of all, economic performance is not in its favor. At this rate, it is unclear if the economy can manage growth above 1 percent this year. Zombie companies unable to afford interest over the last three years total over 3,900. The government offered small and mid-sized enterprises (SMEs) rollouts, deferments and cheap loans during the Covid-19 pandemic. Ailing companies benefited from the cheap loans from the Korea SMEs and Startups Agency and banks, which were provided at rates in the 3 percent range.
The loan rate has been rising in parallel with the base rate that zoomed up to 3.5 percent from 0.5 percent in July 2021 as the pandemic eased. Further deferment is out of the question, and market yields are rising.
While the mortgage lending rate has nearly doubled, far outpacing the base rate, the government has done little to contain the predatory practices of banks. The financial regulator slammed banks for earnings exceeding those of top manufacturers Samsung Electronics, LG Electronics and Hyundai Motor combined in the third quarter. But transposing negligence in supervision onto banks only angers consumers.
Households are agonized by the interest burden of their mortgage loans. Who wouldn’t be when banks take bigger numbers from their accounts every month? The President’s economic team must shake off their nearsightedness.
The economic officials mostly studied finance in the United States. But policy at home must consider the measures taken by Japan and China. Japan has kept its base rate below zero for years. Japanese companies are aflush with surplus sales due to the weak yen. China cut its benchmark rate.
Hitotsubashi University professor Yaichi Aoshima, in a recent lecture at Sogang University, said that the loose fiscal policy under Abenomics has buttressed the low yen and export-led growth, resulting in corporate reserves of over 500 trillion yen ($3.4 trillion).
Financial authorities should have pivoted on a low-won policy to keep up price competitiveness in exports and give SMEs more room. But current policymakers lost that opportunity by blindly chasing the fiscal policy of the United States. Korea’s competitors are in Japan and China. Seoul should have helped Korean companies better compete with East Asian counterparts.
Defeated economic commanders should quietly retire from the field. President Yoon is searching for figures to realign his cabinet for a second term. The new Cabinet must depart from connections to the governing power to engage younger figures and open up to the opposition parties. The government needs innovative figures to find effective ways to improve the struggling public livelihood. Sticking to friends and tribe members can spell a disaster for the remaining period in the presidential term.
Translation by Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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