KoreaToday Economic Challenges, Political Obstacles Await Lee in 2009
By Michael Ha
Staff Reporter
President Lee Myung-bak's economic stimulus plans are headed in the right direction, but his administration will still have to overcome many more political hurdles as it begins to implement economy-boosting projects, said a leading public policy analyst.
Kim Sun-bin, the principal research fellow in the policy research division of the Samsung Economic Research Institute, told The Korea Times that for President Lee, the most important mission now is to effectively communicate his economic rescue plans to the public and win people's support.
He also warned that the current economic problems, as terrible as they may already be, could get worse ― much worse ― in 2009.
Lee's First Year
``I think during the first few months after his inauguration, there was some confusion in the administration,'' Kim said. ``When the administration began the second half of the year, officials began to consolidate their administrative agenda and implement state projects and initiatives in earnest. But that's when the global financial crisis hit.''
So now it's apparent that, policy-wise, the focal point is conquering the ongoing economic difficulties, he noted.
``And it's not just Korea, but all other countries ― the United States, Japan and Europe ― are forecasting their economies and businesses to face tough times next year. They are now implementing new policies geared toward overcoming this global crisis.''
Stimulating the Economy
This month, amid a worldwide economic slowdown, the Lee administration revised down its economic growth target for next year. It now says it will strive for 2 to 3 percent growth in 2009 as Korea continues to face a worldwide business and investment downturn. In 2007, Asia's fourth largest economy recorded 5 percent growth.
Kim observed that the Lee administration, in order to prevent a sharper slowdown, announced in November a total of 33 trillion won ($22 billion) in stimulus packages, including tax cuts and extra fiscal spending.
``Generally, I think these economic stimulus plans are moving in the right direction. There are no major problems. But if I were to offer more counsel, I would talk about possible political conflicts and antagonism that could be expected from the government's economic policies,'' he said.
It behooves the Lee administration to counter these potential conflicts in a systematic, methodical way, Kim counseled. ``If not, there is a risk that the current economic crisis could easily become a wider, more comprehensive crisis. I would tell the Lee administration to focus more on that as well.''
Will Downturn Get Worse?
The analyst said the economy could deteriorate further during the year of the ox. ``What I am fearful of is that next year, the economic crisis might become more severe than anticipated. The current crisis did not arise from within. As we know, the problem started from financial capital transactions in the United States and between the United States and Europe,'' he said.
Therefore, Kim noted, ``We cannot exclude the possibility that additional problems will surface ― additional problems from overseas that we cannot possibly know now. So there is a possibility that the severity of the current crisis could get worse.''
In the United States, the government is also beginning to take comprehensive steps to tackle the crisis, including bailing out troubled sectors and businesses. ``If the United States fails to execute these rescue measures smoothly, it will be very difficult to predict how the situation will unfold. So there are external risks we have to keep a close eye on," he advised.
Lack of Public Support
Internally, everyone is anticipating the onslaught of an economic slowdown, the analyst said. ``Business and economic activities are contracting. People's economic and spending behaviors are also showing contractions.''
Yet, he observed, there is still no social consensus on how to conquer this crisis. ``The reason is that, first of all, unlike the 1997-1998 currency crisis, this time, there is very little feeling of national unity to overcome this new economic problem,'' Kim said.
``I think this is because the needy and the low-income families don't have much faith in state initiatives implemented since 1997 aimed at assisting the poor.''
There is the continuing concentration of wealth and economic polarization in Korean society, he observed. ``This is hurting those who are economically most vulnerable, and they are questioning the viability of government measures.''
Political Hurdles
There are political risks as well. ``There will be by-elections in April and until then the administration may try to implement economic stimulus packages as quickly as possible and show their policy accomplishments and results in dealing with the economic crisis.
``So, it's possible that the administration will try to do it very quickly, even rushing through implementing stimulus packages,'' Kim said
He said there isn't anything inherently wrong with implementing economic stimulus measures quickly. But he added, ``It will likely create further political rifts with the opposition. From the opposition's perspective, they will want to scrutinize these measures further and continue to challenge the administration.''
Four-River Maintenance Project
One example is the budget earmarked for cleaning up and maintaining four major river systems in provinces, the analyst said. ``Some are already voicing their concern that the project could eventually evolve to become the Great Waterway construction,'' he said. ``I think it's also likely that some environmental activists as well as local municipalities with different opinions on this issue would voice their objections.''
That could pose some problems for the Lee administration when implementing this project. ``That's because while the central government will oversee the overall river maintenance and refurbishing project, there are also parts where the administration will need to consult with regional municipalities,'' Kim said.
Communicating With Public
``So considering these internal and external risks, the administration will need delicate, fine-tuned strategies when executing their economic stimulus measures. Actually, the most important strategy right now may be effectively communicating the government's plan to the public,'' Kim said.
``I think the government should put at the top of its to-do list devising effective communication strategies to win the public's support for these stimulus packages.'' Kim advised that the administration should help convince the public _ the ordinary citizens _ that they will receive tangible benefits from these economic plans.
``Winning people's support and their participation through vigorous public relations and communication campaigns should be a top priority for the President.''
Real Estate Tax
``I feel that the government's economic approach could be adjusted a little. But in all fairness, this is a conservative administration with a focus on the market economy ― which means tax cuts and deregulations are in line with the administration's political philosophy,'' he added.
Still, he said, when one looks at tax cuts and analyzes their contents, ``I think there are elements such as comprehensive real estate tax that can worsen economic hierarchies and the wealth polarization. Real estate tax, in particular, is a sensitive issue. The administration could have handled it a little better and avoided giving the impression to the public that this was a priority.''
Helping the Middle Class
In addition to assisting low-income families in these tough times, there is also the middle-class issue, Kim noted. ``Since the 1990s, there was a great expansion of the middle class in Korea. But recently, this trend has been deteriorating. Overall income is still growing for the middle class. Yet the income gap between the upper-class and the middle-class is widening.''
He said there is a sense of economic anxiety in middle-class families. He said it can be categorized into two economic problems. One is the mortgage debt from buying their homes and the other involves other major household expenses including tuition for private tutoring for children. ``When all the monthly expenses are met, very little money is left to save for retirement.''