While Steph Haggard has been reading the tea leaves on North Korean economic policy, South Korean President Park Geun-hye unveiled a “three year economic innovation plan” at her press conference last week. This was followed by a press conference by Deputy Prime Minister/Finance Minister Hyun Oh-seok to reinforce the message. Hyun has since chaired a meeting of the cabinet economic committee to push the plan forward.
Like a lot of such plans, the announcement was fairly clear on the goals, but a little sketchy on implementation details. (Remember President Obama’s “plan” to double US exports?) The main targets seem to be 3.9 percent growth in 2014, $30,000 per capita income (at some date—per capita income is now roughly $25,000), acceleration to 4.0 percent growth and $40,000 per capita income (again target attainment date unclear), and a 70 percent employment rate (which would imply rising employment for women and youth). The Korea Development Institute (KDI) founded by President Park’s father, President Park Chung-hee, where Hyun was formerly president, is backstopping the plan formulation. More details are to be revealed next month.
Some commentators (though not the President or her cabinet) have been talking of a secular growth rate of 4.5-5.0 percent; this would require an extraordinary increase in productivity. The current rate is something on the order of 3.0-3.5, below the world average, and there do not seem to be a lot of unused resources laying around in South Korea.
The President laid out three major strategies:
- Strong economic fundamentals. Deregulation, reign in the chaebol to create a more genuinely competitive economy, and reform practices in the public sector, especially over concerns of rising public and quasi-public (GSE-type) debts. Twelve public corporations, including the Korea Electric Power Corp. and the Korea Land and Housing, have been mentioned as priorities.
- Dynamism and innovation. Emphasize the “creative economy”: more on IT services, less on manufacturing, and particularly regulatory reforms to stimulate education, health, and tourism.
- Balance domestic consumption and exports.
- Emphasize domestic demand (though little apart from a bit of frontloading of fiscal spending has been announced).
- Unsurprisingly the government has expressed concern about the depreciation of the Japanese yen; last year Hyun called Japanese monetary policy more dangerous than North Korean missiles. Yet the BoK has not followed the yen down, and at least for the moment President Park seems to be eschewing the quick fix of currency depreciation.
- Emphasize cost cutting, restructuring, seeking new overseas markets, and maximizing benefits of free trade agreements. Is the bottle half-full or half-empty? It is not a bad agenda in the sense that she is cheerleading private sector restructuring and not offering populist snake oil. But the specifics have little to do with boosting domestic demand.
At least one person got the message: KDI President Kim Joon-gyoung stressed the imperative of structural reform in an appearance this week. Again using Japan as a foil, KDI’s president noted that “Japan’s Abenomics will be unable to fire its third arrow of restructuring and ultimately end up with a failure due to populism. In order for Korea to avert losing two decades like Japan, Korea must deal with potentially insolvent companies, encourage starting business, loosen regulations and open the market immediately.”