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| A woman walks by sale signs at a shopping district, Seoul, Thursday. The government unveiled stimulus plans after the shock of a deadly ferry sinking slowed economic growth to the lowest level in three quarters. / AP-Yonhap |
By Yoon Ja-young
Finance Minister Choi Kyung-hwan voiced concern Thursday that the Korean economy may follow in the path of Japan at the start of its so-called stagnant "lost two decades."
Economists don't disagree
"The minister correctly evaluated the current economy. It is in very bad shape," said Lee Jun-hyup, a research fellow at Hyundai Research Institute.
"If it falls into recession again, the economy will stop its recovery. It is crucial to boost the economy and get it back on track," he said.
Lee represents a lot of other experts when he pointed out that the economy has lost momentum for recovery, and exports, which have sustained the economy, are also facing a global economic slowdown.
The government had previously estimated a 3.9 percent growth for this year, but it lowered the outlook to 3.7 percent, citing a slowdown in exports due to the negative global situation, unstable oil prices, and increasing fluctuations on the foreign exchange market.
The finance minister cited low growth, low inflation and an excessive current account surplus as signs that the country may be falling into the trap Japan got caught in.
Concluding that temporary and partial policy measures would only lead to a vicious contraction circle and fail to boost the economy, Choi has come up with a new policy package that seeks to be a comprehensive "game changer."
Lee positively evaluated the package.
"It seems that Choi included all measures the government can do except for a supplementary budget. It is in the right direction," he said.
However, Lee added that there should be additional measures such as an interest cut by the central bank, as the economy is in such a dire condition.
He said that now the government has moved in the right direction, it should be careful in building up concrete support measures. "Currently they only have direction. The success or failure will be determined after they come up with concrete measures."
Lim Jean, an economist at the Korea Institute of Finance, agreed that the government had taken all the measures it could.
"The biggest problem is the sentiment of the economic players. I think the policy package will help a recovery there," he said.
However, he said the policy package is only a short-term solution aimed at coping with the current economic slowdown, following the April ferry disaster.
"It doesn't solve fundamental problems. In order to not follow in the footsteps of Japan, more fundamental measures should be prepared coping with the problems in the job market and the aging of the society," he said.
A survey of economic experts and ordinary citizens showed that the latter are more pessimistic about the economy.
Two out of three people said the economy had deteriorated compared with 2013.
Economists said that arousing consumer sentiment is most crucial. The government has recognized that stagnant wages are partially responsible for sluggish domestic consumption.
The policy package also tries to solve the problem of non-regular workers, who often get lower wages and fewer benefits compared to regular workers even when they do the same job.
Around 6 million workers, or 25 percent of wage earners here, are non-regular employees.
The government wants to encourage corporate investment as well as channeling gains into households.
For this, the government announced a speeding up of deregulation and support for corporate owners in the transfer of their businesses to their children; while adopting tax measures to induce businesses to pay higher wages and dividends.
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