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President Lee expected to hammer out slew of policies for economic revival

Published: 04 Jun. 2025, 10:25

Lee Jae-myung, the new president of Korea, during his campaign at the Suwon Yeongdong Market in Gyeonggi on May 26 [JOONGANG ILBO]

A new chapter begins in Korea with President Lee Jae-myung. Throughout his campaign, Lee emphasized that “restoring people’s livelihoods and the economy is more urgent than reform,” signaling that economic recovery would be his top priority.

Upon his inauguration, he is expected to launch an emergency economic response task force and begin crafting measures to revive the suffocating economy.

A supplementary budget of over 30 trillion won ($22 billion) could be proposed as early as July. Despite expectations of a third consecutive year of tax revenue shortfalls, the new administration sees fiscal stimulus as necessary to jumpstart the economy.

“Fiscal soundness is important, but the priority now is to support small businesses and boost domestic demand,” said Ahn Dong-hyun, an economics professor at Seoul National University.

If a supplementary budget is passed, it is likely to include debt relief or write-offs for small business loans extended during the pandemic. Investments in social overhead capital, which have high ripple effects, are also expected to increase.

Lee is also expected to expand the issuance of regional gift certificates — his signature pledge. These are coupons to local retailers and shops typically sold at a 10 percent discount, with local or central governments covering the difference.

If the national government boosts its share of funding through the supplementary budget, local governments would be able to issue more certificates, stimulating consumption. A one-off cash payment in the form of a “livelihood recovery allowance,” similar to those distributed during the pandemic, is also reportedly being considered.

Lee Jae-myung, the new president of Korea, during his campaign at the Suwon Yeongdong Market in Gyeonggi on May 26 [JOONGANG ILBO]

Lee’s mid- to long-term economic vision is encapsulated in the slogan “335”: becoming one of the world’s top three AI powers, achieving a three percent potential growth rate, and elevating Korea to the top five global economies. With AI placed at the top of his 10 key pledges, he is expected to push ahead aggressively with support for the sector. Related regulations will likely be relaxed and special exemptions introduced.

A new AI policy secretary position will be established within the presidential office, and government funding for AI will be raised to levels on par with advanced economies. The government plans to secure over 50,000 graphics processing units and build AI data centers. A 100 trillion won national fund for strategic industries — including AI, semiconductors and robotics — will be created with participation from the public, private sector, government and pension funds.

In the financial sector, attention is focused on whether the new administration will reintroduce a commercial law revision that would expand corporate directors’ fiduciary duty beyond the company to its shareholders. The aim is to protect retail investors from harm during mergers, acquisitions or spin-offs, but the proposal has faced strong resistance from the business community, which says it could unduly restrict corporate activity. Still, Lee has identified undervaluation of the local stock market as a problem, suggesting the proposal will gain traction under his leadership.

This aligns with his campaign promise to raise the Kospi to 5,000 points. Other key proposals include a one-strike policy for stock manipulators and a rule requiring that minority shareholders be guaranteed allocations of new shares in cases of corporate spin-offs.

In labor policy, Lee plans to extend the retirement age to 65 and experiment with a four-and-a-half-day workweek at public institutions. He is also expected to pursue a ban on comprehensive wage contracts. Legislation nicknamed the “Yellow Envelope Bill,” which twice failed to pass under the Yoon administration due to presidential objections, will likely be revived. Though critics claim it encourages illegal strikes, Lee argued during televised debates that the law “should absolutely be passed.”

Elderly citizens are seen at the Tapgol Park in Jongno District, central Seoul, on May 27. [NEWS1]

On real estate, the focus will be on increasing supply rather than suppressing prices. Key measures include easing restrictions on redevelopment and reconstruction procedures, as well as relaxing limits on floor-area and building-coverage ratios. Controversial property tax reforms have been pushed down the agenda.

In a pre-election interview, Lee stated, “I will not try to control housing prices through taxes.” As part of government restructuring, the Ministry of Economy and Finance is expected to shed its budgeting role and focus solely on economic policy planning and management.

Expectations and concerns about the new president’s economic policies reflect the tough reality he faces. According to projections by domestic and global institutions, Korea’s GDP growth rate this year is expected to remain below 1 percent. Since the 1990s, Korea has only posted growth in this range three times: negative 4.9 percent in 1998 during the Asian financial crisis, 0.8 percent in 2009 during the global financial crisis and negative 0.7 percent in 2020 during the Covid-19 pandemic. Based on economic conditions alone, Lee is taking office in the most adverse environment since Kim Dae-jung.

One immediate challenge is shielding the economy from external shocks. Korean exports are now facing mounting pressure from U.S. trade policies. A slowdown in key export sectors — including semiconductors, automobiles and steel — appears inevitable. Seoul and Washington have agreed to reach a trade deal by July.

The new president’s diplomatic leadership will be crucial as he faces off against U.S. President Donald Trump in his first high-stakes negotiation. Whether he can restore top-level diplomatic channels and secure meaningful concessions to minimize the export fallout remains to be seen.

U.S. President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, on June 29, 2019. [REUTERS/YONHAP]

Reinvigorating domestic demand will also be far from easy. Since peaking at 4.1 percentage points in 2021, domestic demand’s contribution to GDP has steadily declined — falling to 2.7 in 2022, 1.4 in 2023 and 0.1 in 2024. In the first quarter of this year, it dragged growth down by 0.6 percentage points.

The problem is deeply structural, particularly demographic. Korea’s working-age population, those aged 15 to 64, peaked at 37.63 million in 2019 and is projected to decline to 32.3 million by 2040. Meanwhile, the share of the population aged 65 or older will rise to 34.4 percent. That means fewer income earners and more people cutting back on spending in retirement.

Household consumption is also being squeezed by high debt burdens and private education costs, while disposable income is increasingly spent on overseas travel. In short, domestic recovery hinges on a complex equation involving reform in demographics, education and taxation — all of which fall into the new president’s lap.

“Reform inevitably meets resistance,” said Jun Joo-sung, professor emeritus of economics at Ewha Womans University. “A president can’t steamroll the opposition just because of a legislative majority. They must present a clear blueprint and use cooperative politics to build social consensus.”

According to the Korea Development Institute, Korea’s potential growth rate between 2025 and 2030 is projected to average just 1.5 percent annually. That decline is tied to structural issues like the low birthrate and an aging society.

Elderly citizens are seen at the Tapgol Park in Jongno District, central Seoul, on May 27. [NEWS1]

Empty seats at a restaurant in Seoul on April 8 [YONHAP]

Ultimately, the only solution is to raise productivity — both in people and in industry. While every administration has talked about innovation, Korea’s core industries — semiconductors, shipbuilding and automobiles — have remained largely unchanged for 20 years. Even semiconductors, once the strongest pillar, are now struggling due to a failure to adapt and intensifying competition.

“It was right to designate AI as the next semiconductor and commit to bold investment,” said Kim Kwang-seok, head of economic research at the Korea Institute for Industrial Economics & Trade. “But Korea is still a latecomer in AI. What’s needed now is not vague slogans or general support, but a precise catch-up strategy.”

Lee has emphasized the role of aggressive fiscal policy. While he estimated that fulfilling his campaign pledges would require around 210 trillion won, he has yet to present clear funding plans.

“Some say a 50 percent national debt-to-GDP ratio is manageable,” said Jun. “But when you consider rapidly rising mandatory spending, debt could skyrocket within a decade. Even when spending is necessary, the government must maintain a guiding principle of fiscal discipline.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY JANG WON-SEOK [[email protected]]