By Na Jeong-ju
The Park Geun-hye administration's economic policy agenda, unveiled Thursday, was largely a reiteration of her presidential campaign pledges that focused on people's welfare and addressing the harsh reality being faced by small businesses.
However, it's encouraging to see that the government has finally started to help people spend money ― consumption has long been low because of the nation's high rate of household debts.
Some measures were included in the package to boost spending.
The government will today launch an institution tasked to buy debts from households at default risks and implement credit recovery programs for the debtors. It plans to write off part of the debts, which will cost tax payers. The government says more than 300,000 people will benefit from the program.
The money, which policymakers call the People's Happiness Fund, is similar to a bailout fund given to cash-strapped companies during hard times. The difference is that the firms must pay back after they recover, but the households don't have to. The fact is that their debts will be equally taken over by all taxpayers here.
Apart from the debates over the possible moral hazard such a scheme will likely create, it will make them buy more food and commodities instead of paying interest. That's certainly good for them.
The debt write-off plan is a desperate effort to rescue heavily-indebted households, but won't create a virtuous circle for the whole economy in the long term.
In this regard, the administration has placed job creation at the top of its economic policy priorities.
It plans to create 16,000 jobs in the public sector and expand tax incentives and administrative support for firms hiring more people than in the past.
It also pledged to expand financing for small- and mid-sized enterprises (SMEs) and deal sternly with unfair business practices committed by large firms to protect small firms. The government also said it will nurture value-added businesses in the information technology sector to strengthen the country's economic fundamentals.
Certainly, SMEs deserve more attention and support because about 99 percent of Korean firms are small-sized but they employ some 88 percent of Koreans. If they grow, more people will get jobs.
All these programs boil down to boosting consumption. It remains to be seen whether they will succeed, but the prospects are not bright.
"The Lee Myung-bak administration also carried out various policies to restore the middle class and nurture SMEs, but they made little difference," an analyst said, asking not to be named. "There won't be a turnaround in private spending without addressing the dwindling disposable income for individuals and the worsening profitability at Korean firms. These are the most fundamental issues."
The analyst said such issues are mostly associated with external factors, which are beyond the government's control.
Ryu Yong-seok, an analyst at Hyundai Securities, said the economy is facing a double whammy ― Japan's move to lower the value of its currency and the escalating nuclear brinkmanship by North Korea.
"Such issues may weigh on Korean firms down the road. What matters is how to respond to such external negatives," Ryu said.
Analysts say the private consumption growth has remained low due to the combination of structural problems, including slow income growth, heavy household debt and widening income inequality.
According to the Bank of Korea, private consumption grew 4.4 percent in 2010, 2.3 percent in 2011 and 1.8 percent in 2012. These rates fell short of the growth rates ― 6.3 percent in 2010, 3.6 percent in 2011 and 2 percent in 2012.