South Korean dreams fade as econ­omy and pres­i­dent strug­gle

The Pak Banker - - BUSINESS -

It took three years and ac­cep­tance of a sharp wage cut for ma­chin­ery re­pair engi­neer Choi In-chan, 52, to find a job ear­lier this year.

Like many baby boomers who en­joyed South Korea's heady growth years, Choi has been dou­bly squeezed by the coun­try's re­cent eco­nomic malaise: not only is he un­pre­pared as re­tire­ment looms, but his adult son is un­able to find a full-time job. Predica­ments like Choi's are what prompted Pres­i­dent Park Ge­un­hye to ac­knowl­edge on Thurs­day that "ma­jor surgery" is needed to fix "chronic and struc­tural prob­lems" in Asia's fourth­largest econ­omy. Hav­ing come to of­fice in 2013 with prom­ises to ease the econ­omy's re­liance on ex­ports and the grip of its huge con­glom­er­ates, Park is now near the mid-point of her five-year term and has thus far man­aged nei­ther. "It's a pity. This coun­try has missed chance af­ter chance," said Choi, who lives in a work­ing class area of Seoul.

"It has been the same, gov­ern­ment af­ter gov­ern­ment. There was all talk at the start of a gov­ern­ment and then ev­ery­thing was so quickly ig­nored and for­got­ten." Gov­ern­ment re­sponses to two crises it has faced - the sink­ing of the Se­wol ferry last year and this sum­mer's out­break of Mid­dle East Res­pi­ra­tory Syn­drome - were seen as slow and in­ad­e­quate, and ex­acted a heavy toll on both the econ­omy and Park's po­lit­i­cal cap­i­tal.

While Park is not to blame for global eco­nomic head­winds, crit­ics say her pol­icy fail­ings have ex­ac­er­bated their im­pact: a lack of mean­ing­ful fis­cal stim­u­lus to re­in­force in­ter­est rate cuts de­spite healthy public fi­nances, lit­tle fol­low-up on re­form prom­ises, and overly op­ti­mistic eco­nomic assess­ments. Growth is by some es­ti­mates on track to drop to 2.5 per­cent this year, which would be the third- worst per­for­mance since the 1997/98 Asian fi­nan­cial cri­sis, from 3.3 per­cent last year. The mar­ket's con­sen­sus forecast is for 2.8 per­cent growth.

"Peo­ple just feel at a loss for a sense of where the gov­ern­ment wants to push the econ­omy," said Oh Suk-tae, econo- mist at So­ci­ete Gen­erale in Seoul.

South Korea's sin­gle-term pres­i­dency and Park's low pop­u­lar­ity make it hard for her to drive re­forms. She has called for a "cre­ative econ­omy" to spur in­no­va­tion and the growth of small and medi­um­sized busi­nesses, in a drive to di­ver­sify the econ­omy and wean it off its re­liance on ex­ports. But the coun­try's gi­ant fam­i­lyrun con­glom­er­ates, or chae­bol, are as dom­i­nant as ever. It took a year from Park's in­au­gu­ra­tion for her gov­ern­ment to un­veil its eco­nomic goals, which in­cluded lift­ing em­ploy­ment and per­sonal in­comes, and con­tain­ing heavy and grow­ing house­hold debt. On the first two goals, progress has lagged the tar­gets, while house­hold debt has grown.

Park's ap­proval rat­ing has fallen be­low 40 per­cent, from as high as 61 per­cent in mid-2013. Crit­ics say she failed to take ad­van­tage of a near-record cur­rent ac­count sur­plus to do more to stim­u­late the econ­omy as high house­hold debt sup­pressed spend­ing, which, along with slug­gish ex­ports, has in turn de­terred cor­po­rate spend­ing. "We don't see the same bold­ness that South Korea used to de­liver in the past. For ex­am­ple, the seven rate cuts - four in the last 12 months - have not been enough to lift the fog of gloom," said Waiho Leong, economist at Bar­clays in Sin­ga­pore.

One of the big­gest chal­lenges is un­favourable de­mo­graph­ics. The workingage pop­u­la­tion will start shrink­ing from 2017 and in­dus­tries that made South Korea an ex­port pow­er­house, from elec­tron­ics and cars to ship­build­ing and chem­i­cals, are faced with weak­ened de­mand and chal­lenges from China and Ja­pan. Poverty among the el­derly is al­ready the high­est in the 34-na­tion Or­gan­i­sa­tion of Eco­nomic Co-op­er­a­tion and De­vel­op­ment (OECD), and those born in the decade fol­low­ing the 1950-53 Korean War are on a sim­i­lar track. A sur­vey by a public re­search agency last year found 70 per­cent of those in their 50s were fi­nan­cially un­pre­pared for re­tire­ment. At the same time, youth un­em­ploy­ment is near a record high de­spite Kore­ans in­vest­ing heav­ily in univer­sity ed­u­ca­tions, with a rigid two-tiered labour sys­tem mak­ing it harder for grad­u­ates to se­cure a ca­reer po­si­tion. -

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