Sea change in South Korea most
Last Tuesday’s victory by Moon Jae-in in South Korea’s early presidential election appears to have been welcomed by
observers, as evidenced by the strengthening of the won and Asian share rallies following his landslide win.
Geopolitically, Mr Moon’s softer stance on nuclear-armed North Korea could ease tensions on the Korean Peninsula, though it could create friction with Washington under Donald Trump, who has not ruled out military action in light of stepped-up missile and nuclear testing by Kim Jong-un. Mr Moon, who was sworn in last Wednesday, has even said he is open to visiting North Korea if that’s what it takes.
“I am willing to go anywhere for the peace of the Korean Peninsula. ... If the conditions shape up, I will go to Pyongyang,” he said.
South Korea’s first liberal leader in a decade, Mr Moon swept to power in an unprecedented election called after his predecessor Park Geun-hye was impeached in March over a corruption scandal. The son of a North Korean refugee and the runner-up to Mrs Park in 2012, he has also shown a willingness to challenge the United States, although he recently reversed his earlier opposition to the presence on South Korean soil of a US missile-defence system that is opposed by many Koreans, as well as China.
In any case, analysts are optimistic that a Moon presidency will result in more engagement between the two Koreas.
The financial services group Brown Brothers Harriman was among many foreseeing a “less confrontational approach” with Pyongyang. “Many Koreans saw North-South relations worsen despite Mrs Park’s hardline approach and so a softer touch may be needed,” its strategists wrote.
Domestically, Mr Moon has inherited a faltering economy that grew by only 2.8% in 2016 and where youth unemployment has doubled over the past two decades. But solving long-term structural weaknesses and deep-rooted problems with chaebols — the opaque family-run conglomerates that have become lightning rods for criticism — will require a lot more boldness and creativity than past governments have shown.
Also of great concern is a demographic trend that does not favour South Korea. With one of the world’s lowest fertility rates, at 1.17 births per woman, the country is ageing quickly and the working-age population will soon start to shrink by 1% annually over the next 20 years. That pushes up the cost of supporting an army of senior citizens onto a smaller number of productive adults.
To deal with this reality, Mr Moon has spoken about wooing more of Korea’s highly educated women into the workplace, something the International Monetary Fund has also recommended. This should benefit South Korea and would be easier than opening up the country to immigration which is a highly sensitive issue.
South Korea has experienced a similar development path to Taiwan, built largely around technology industries, but Chinese rivals are rapidly catching up and a new model may be needed. Some analysts even warn of a “high income gap” given the current high jobless rates, especially among young people.
South Korea’s jobless rate stands at 5%, but spikes to 12.3% for those aged 15-29. This simmering frustration among the young was one factor in the huge protests that led to the exit of Mrs Park.
Addressing these problems won’t be easy. Korean companies will need to be even more innovative and market-savvy, while the education system needs reform to allow for more creative thinking and specialisation.
Mr Moon has pledged to sharpen the teeth of business regulators and other measures to drive a restructuring of the opaque chaebol ownership and governance system. Smaller firms would welcome a better chance to compete. Breaking up the chaebol system would stimulate competition, productivity and innovation.
“The medium-term outlook will depend on any progress the new president and his administration are able to make in pushing through key reforms aimed at tackling the country’s mounting structural problems,” the research firm Capital Economics said in a report this month.
To me, reviving the South Korean economy is critical as the country is one of Asean’s key trading partners and foreign investors. On political front, China is increasingly flexing its military and economic muscle to dissuade Seoul from deploying the American missile-defence system.
A reduction of tensions on the Korean Peninsula is positive for Asia as a whole and the stronger the South Korean economy, the better it can withstand the pressure, and the better off the entire region will be.