[Economic Policy] Lee’s Economic Team Faces Daunting Tasks

President Lee Myung-bak takes the rudder of South Korea as its new captain today for another economic takeoff. He promised a 7-percent annual growth on average during his five-year term.

By Ryu Jin
Staff Reporter

President Lee Myung-bak takes the rudder of the Republic of Korea as its new captain today for an ``economic renaissance'' through alleviation of regulations and liberalization of the market.

As a former CEO of private construction firm nicknamed ``bulldozer,'' he promised a 7-percent annual growth on average in the five years of his tenure.

But the general picture does not seem so favorable. Let alone concerns about bad signs from outside, there is also pessimism at home that the fundamentals of the national economy are not very stable either.

Amid mixed prospects of anticipation and worry, Lee's first economic echelon was outlined earlier this month. And experts expect that the team will soon reveal its colors clearly, which will be typified by ``pro-business'' and ``market-oriented'' policies.

Inaugural Team

Lee chose Kim Choong-soo, 61, president of Hallym University, as his senior secretary for economic affairs, while he picked up Kwak Seung-jun, 47, an economics professor at Korea University, as his senior secretary for national policy planning.

He also named Kang Man-soo, 63, former vice finance minister, as his administration's first planning and finance minister. Lee Yoon-ho, 60, vice chairman of the Federation of Korean Industries (FKI), is expected to be the first information and economy minister.

Kang, Kwak and Kim will play the role of a ``control tower'' for major economic policies. Lee would look after the industry, while another official ― not designated yet ― will take care of the financial part of the macroeconomics.

Sagong Il, 67, head of the special presidential committee on national competitiveness, would join the team to focus on the reform of public sector as well as the inducement of foreign investment from abroad.

Some people raise concerns that the high-profile policymakers might often experience disagreements because of their self-assertive characteristics and slightly different positions on concrete issues.

But they share at least one core principle: the country needs to regain economic vitality through the alleviation of regulations and find new growth engines from the market itself.

Kang, a Seoul National University (SNU) graduate, is a strong advocate of tax reductions. Lee's major election pledges such as the reduction of corporate tax and real estate-related taxes came from his head.

As the planning and finance minister who holds budgetary control, he is expected to act as a main coordinator among different economic offices in the administration.

Kwak, who is known as the main architect of Lee's economic policies, will set a broad direction for the national economy. As a senior presidential secretary, the Korea University alumnus will also play the role of a bridge between ministries and the presidential office.

Kim, also an SNU graduate, is well known for his market-oriented approach. He thinks highly of openness and competition for the national competitiveness.

Despite the common features in general, however, some people pay attention to their differences in detail.

For instance, Kang is known for his firm stance for reduction of corporate tax, which would mainly benefit large conglomerates. But Kwak is said to believe that the corporate tax reduction should be limited only to small- and medium-sized enterprises.

Late last year, Kang suggested in a media interview that the current comprehensive real estate tax should be slashed drastically. Kwak, however, told other journalists that there would be no major change with the real estate taxation policy for the time being.

``Other members of the inaugural economic team are also known as officials with clear-cut individuality. So, I'd say that its success lies in the coordination capability,'' a senior government official said.

Examples of slack management have already been shown in the two months of the presidential transition committee.

Lee, a conservative politician who often vowed to give a freer hand to the market, suggested a reduction in mobile telecommunications fees ― only to face tough resistance from private service providers.

Lee and his aides also said late last year that the administration would restructure debts held by some 7.2 million people with credit problems and remove their delinquency records as part of efforts to relieve the people's livelihood and spur domestic consumption. But they had to put the plan on the backburner in the face of mounting criticism from the financial industry.

``If the administration fails to coordinate policies properly among different government ministries and the presidential office, there would be more mishaps in the coming days,'' the official said on condition of anonymity.

Lee and his economic team, in particular, are already faced with numerous problems such as slowing exports, sluggish domestic consumption, high unemployment and the widening socioeconomic polarization.

Tough Start

A number of people here still remain optimistic about the future of the nation's economy at a time when the world's financial market is rocking and rolling. Many of Lee's aides also believe that a rainbow and a shiny sun will come out once the shower passes by.

Not a few global economists, however, warn that the U.S.-triggered subprime woes would not come to an end in the near future.

George Soros, for example, said in a recent article to the Financial Times that the ``current crisis is the culmination of a super-boom that has lasted for more than 60 years.'' Although it should be duly considered that the warning came from the legendary hedge fund trader, his words were enough to underline the gravity of the current situation.

Falling real estate prices would shrink the domestic consumption in the United States and it could ultimately lead to a slump in the world's largest economy. Such a situation would inevitably send a ``cold wind'' to Asian countries across the Pacific including South Korea, which sends a large portion of its exports to America.

What puts the just-launched administration in a more difficult situation is that it is not only the exterior environment that is worrisome.

In late 1997, when the country was hit by a financial crisis, it was the corporate and financial sectors that were in trouble. Now it seems to be the households that stand on the brink.

Household debts snowballed in recent years amid abnormal price hikes of apartment houses. And the net personal saving ratio, which hovered 15 percent about a decade ago, dropped to 3.5 percent in 2006.

Bad signs are also found in trade, which has propped up the economy. South Korea posted a trade deficit of about $3.3 billion (roughly 3.1 trillion won) with other countries in the first month of the year.

At last, Lee lowered this year's target growth rate to 6 percent recently (an average of 7-percent growth throughout the five years in office has not been abandoned yet). His aides say with confidence that the goal would be achieved ``without excessive stimulus measures.''

Lee tries to enable the virtuous cycle of economic growth, job creation and promotion of consumption through drastic alleviation of regulations and all-out tax cuts. But, his master plans have already exposed aspects of self-contradiction.

Lee, who promised a ``slimdown'' government, seeks to concentrate yet more power in the presidential office. It means, critics point out, that key economic policy decisions would instead come from his office, or Cheong Wa Dae (Blue House).

``South Korea's economy is too large and too complex to be managed by the government,'' he said in a news conference. But, at the same time, he urged the business tycoons of the country's large conglomerates to invest more in their homeland.

He also remains committed to the construction of a controversial canal across the country. Opponents, however, denounce the scheme as an ``economic lunacy'' and an ``artificial boon'' for the construction industry, which has faced bad days in recent years.

Lee vowed to create 600,000 jobs annually to add 3 million new jobs in his five-year tenure. But his economy team failed to present concrete measure to achieve the goal and address the high unemployment rate, especially that among young people.

He seems to have the logic that the creation of jobs will follow economic growth automatically. But recent statistics and analyses suggest that things may not necessarily go like that.

Analysts point out that the job creation capability of the nation's industries continues to fall year after year amid a trend of ``jobless growth.''

In theory, economic growth was meant to lead to job creation. But the link between macroeconomic growth and employment has been weakening because of the advancement of the industrial structure and expansion of overseas investment.

On Monday, the Korea National Statistical Office (KNSO) announced that about 235,000 people were newly employed in January, the lowest figure in two years.

``Even 7-percent economic growth would not guarantee the creation of 3 million jobs,'' Korea University Prof. Lee Pil-sang said, urging the Lee administration to overhaul its policies on job creation.

Concerns are also prevalent that the Lee administration's pro-chaebol policies would only widen and deepen the gap between the haves and have-nots.

In particular, major ``bread-and-butter'' policies for those in the middle- and low-income brackets, such as measures to reduce the cost of private education, were omitted in the core policy tasks unveiled on Feb. 5.

``Lee was elected on a platform of what he calls the `warm market economy.' His main policy objectives, however, seem distant from the warm economy,'' Dankook University Prof. Cho Myung-rae said.

Lee put a renewed emphasis on the people's livelihood in the two-day workshop he attended with key post-holders last week. Such terms as the ``socially weak'' and ``small- and medium-sized enterprises'' were heard more often in the event, according to participants.

``After all, the economic revitalization is the call of the times, which gave birth to the Lee Myung-bak administration,'' Kim Choong-soo, the senior secretary, also said. ``We will advance our economy, but not neglect the people.''

Critics, however, argue that such remarks may end up as an empty slogan aimed for the April 9 general elections if not accompanied by concrete policies.

``What is important is not words but actions,'' said Lee Su-hyun, a university graduate in Seoul who has yet to find a job. ``I hope the new head of state will keep his words with concrete policies that produce tangible outcomes.''

jinryu@koreatimes.co.kr