President faces tough test on structural reform

President Park Geun-hye stands with CEOs of major conglomerates ahead of a luncheon at Cheong Wa Dae, Tuesday. From left are Samsung Electronics Vice Chairman Lee Jae-yong, LG Group Chairman Koo Bon-moo, Park, Doosan Yonkang Foundation Chairman Park Yong-hyun, Hyundai Motor Vice Chairman Chung Eui-sun, CJ Group Chairman Sohn Kyung-shik, Eagon Industrial Chairman Park Young-ju, and Naver Chairman Lee Hae-jin. During the meal, they discussed ways to boost competitiveness in the culture and sports industries. / Yonhap

By Yoon Ja-young

With three years left in her term, President Park Geun-hye’s administration should focus on forming a virtuous circle in the economy through structural reform, economists advise. They also cite consensus on social welfare and preparation for the aging population as pressing issues.

“There is a reason why welfare has become the topic of our time. There should be consensus on welfare, and that welfare is an investment. Then the whole of society should discuss and choose among the options ― whether to pay less tax and get less welfare, or to pay more tax and enjoy more welfare, or to go between the two,” said Lim Hee-jung, a senior economist at Hyundai Research Institute.

He also stressed forming a virtuous circle in the economy, which the Park administration has strived for in recent years. “The economic players continue to be unsure about the economy. The government should make a new start somewhere,” he said.

For instance, if the household debt is a problem, the government may consider taking more bold measures to ease the burden, without causing a moral hazard, Lim explained.

“Businesses are hesitating in making investments and households are hesitating with consumption. There should be a trigger for investment and consumption,” he added.

Lee Geun-tae, an economist at LG Economic Research Institute, cited structural reform as the most pressuring issue.

“The problems we currently face are not related to the economic cycle. We are losing growth potential in the long term. That’s why we need structural reform,” he said.

The economist added that the country should seek new growth engines, especially in the domestic market. “The growth strategy led by exports is nearing limitation.”

He pointed out that the sluggish domestic consumption is partly due to the problems in the supply side ― while traditional consumption such as education spending is decreasing, there are not attractive alternatives where consumers can spend money. “For instance, the country may create new demand in sectors like leisure, culture and medical tourism. They will not only enhance the quality of life, but also boost consumption. Deregulation and setting proper infrastructure are key for these,” Lee said.

Park Jong-kyu, a senior research fellow at Korea Institute of Finance, meanwhile, said household debt could be the biggest threat in the short term. “That is the most important and widely known risk factor in Korea’s macro-economy. While experts overseas are taking it as a very serious issue, the government doesn’t seem to have a clear agenda for this,” he said.

President Park said early last year that the government will pull down the ratio of the household debt to income by 5 percentage points by 2017, but the household debt is only increasing.

The researcher picked the aging of the population as the issue that the current administration should deal with for the next three years.

“The successor to President Park will be beginning his or her term in an ‘aged society,’” he said. Korea is expected to become an “aged society” in 2018, where more than 14 percent of the population is aged 65 or older.

“Just as individuals should prepare for retirement while they are young, society should be prepared for aging before it becomes ‘aged.’ It should take all necessary measures, such as increasing tax income or streamlining welfare if needed. They should complete this within her term. That’s the task this era requires of the Park administration,” he said.