Can New Govt. Revive the Sagging Economy?
Deputy Prime Minister-Minister of Strategy Finance Hyun presides over the 1st Ministerial Meeting on the Economy, restored after 15 years
Deputy Prime Minister and Minister of Strategy and Finance Hyun Oh-seok
Deputy Prime Minister and Minister of Strategy and Finance Hyun Oh-seok hosted the 1st Ministerial Meeting on the Economy of the Park Geun-hye administration on April 10. The meeting was attended by related ministers, including the minister of trade, industry and energy, the minister of health and welfare, the minister of land, infrastructure and transport, and the chairman of the Financial Services Commission.
This was the first meeting following the conclusion of regulatory reforms to revive the Ministerial Meeting on the Economy after a fifteen-year hiatus. This meeting, chaired by the Deputy Prime Minister, and reenacted under the new administration, will play a pivotal role in formulating policies to revitalize the Korean economy. At the meeting, Deputy Prime Minister Hyun led discussions on drawing up the supplementary budget proposal and comprehensive measures for the housing market.
True to President Park’s campaign pledges, the new government has revived the post of deputy prime minister for economic affairs, which will serve as the new government’s control tower for economic policies. The post of deputy prime minister for economic affairs dates back to the government of former president Park Chung Hee, President Park’s father, who appointed the minister of the now-defunct Economic Planning Board, who was also deputy prime minister, to serve as the control tower for economic policies to push ahead with the five-year economic development plan that drove the nation from the ashes of the Korean War to the “Miracle of the Han River.”
The Ministerial Meeting on the Economy’s main duties will be to make economic policy decisions and monitor the execution of those decisions.
Whenever he had a meeting with reporters, Deputy Prime Minister Hyun has indicated a shift in the paradigm of formulating economic policies by the new government’s economic team. He was quoted as saying, “No one seems to have recognized the need for changing the economic policy management paradigm.”
Deputy Prime Minister and Minister of Strategy and Finance Hyun
Oh-seok presides over the 1st Ministerial Meeting on the Economy on April 10.
Hyun has suggested the three keywords and phrases for the paradigm shift: cooperation, strategy, and translation into action. The old days when the now-defunct Economic Planning Board (EPB) had coerced other ministries to follow its own policies are gone, but the time has come when the MOSF needs to consult with other ministries and show good teamwork so that policies can be executed properly and timely, the deputy prime minister noted. Secondly, he spoke of strategy. Hyun said it is essential to prepare for persuading policy opponents so policies can be executed properly. Finally, he stressed policy execution, saying that a “good policy”that can be translated into action is better than the “best policy”that cannot be executed at all.
North Korea’s ratcheting up of its threats against South Korea and the United States was put on the agenda of the 1st Ministerial Meeting on the Economy.
Deputy Prime Minister and Minister of Strategy and Finance Hyun Oh-seok
attends the Spring Meetings of the World Bank and the
IMF in Washington, D.C. on April 22.
The volatile North Korean situation has had a limited effect on the Korean economy and financial markets, but these negative effects have been growing to an extent due to increased tensions related to North Korea. This situation is also compounded by persistent euro zone anxieties. The government is on high alert to minimize the effect of these growing external risks to the Korean economy. Together with related institutions, the government will carefully monitor relevant trends, and should any special circumstances arise, the government is prepared to take immediate, strong, and aggressive measures. The government is sure that foreign investors along with Korean businesses and consumers believe in the Korean government’s ability to firmly manage any crisis and the strong fundamentals of the Korean economy.
Drawing Up Supplementary Budget Proposal
Despite a temporary recovery following the global financial crisis, the Korean economy has recently returned to its trend of persistent low growth. Tax revenue conditions for 2013 have worsened due to poor economic conditions and delays in the sale of government-owned stocks, and it is inevitable that the government will require supplementary tax revenues. At the same time, it is also necessary for the government to increase spending to promote economic recovery and support the working class.
The supplementary budget proposal focuses on three main areas. First, the government will push for projects that are highly effective for boosting the economy and supporting the working class, such as improving the agricultural distribution structure and funding support for startups and facilities investment.
Second, the government will take on projects that can create jobs within the year, such as fostering ICT human resources, and supporting youth startups and youth job creation.
Third, the government will push for projects that will solve recent emergencies, such as poor housing markets and cyber terrorism.
The supplementary budget proposal takes into account the urgency of the current situation.
Cabinet Approves Supplementary Budget Of 20 Tln Won
The Cabinet on April 16 approved the MOSF’s stimulus package of 20.3 trillion won to turn around the sagging national economy. The total breaks down to a supplementary budget of 17.3 trillion won and 3 trillion won, to be raised through public funds. The proposal for the latest extra budget, which will come on top of a 342 trillion won annual budget for 2013, has been submitted to the National Assembly for approval on April 18.
The economy grew 2 percent in 2012, the slowest gain in three years. Last month, the government revised its economic growth outlook for 2013 to 2.3 percent from 3 percent last December. The government expects the supplementary budget to bring about an additional 0.3 percentage point rise in gross domestic product for the year and also raise the growth rate by 0.4 percentage points in 2014. The government also said the extra budget will create 40,000 new jobs.
The MOSF announced earlier that a supplementary budget of 17.3 trillion won will be spent throughout 2013, the largest since 1998 when the country was faced with the Asian financial crisis, mostly in supporting the working class and stimulating the economy.
Of the 17.3 trillion won, 5.3 trillion won will be used to supplement budget expenditures. That amount reaches 7.3 trillion won when 2.0 trillion won of available resources from funds is taken into account, and 12 trillion won will be used to finance revenue losses. Tax revenue losses of 6 trillion won is forecast with the economic growth outlook being revised down, and nontax revenues are expected to be 6 trillion won less than what was originally planned due to a delay in the sale of government holdings in the Korea Development Bank and the Industrial Bank of Korea.
The supplementary budget will be financed mostly by issuing government bonds, along with 0.3 trillion won from government surplus, 0.3 trillion won from the Bank of Korea surplus, and 0.3 trillion won by cutting spending. The government will also utilize available resources in funds.
Comprehensive Measures For Housing Market
The 1st Ministerial Meeting on the Economy also took up such issues as ways to boost the housing market.
The government has been pressing for comprehensive housing market measures, which were announced earlier, to be speedily implemented in order to not miss its chance to normalize the housing market.
The government has decided to ease tax burdens by expanding support for first-time homebuyers and pushing for related bills to pass the national assembly. The administration will strengthen cooperation with the National Assembly in order to quickly pass a temporary exemption of the real estate transfer tax following housing purchases. The government will immediately reduce mortgage interest rates for first-time homebuyers and ease the income conditions required for first-time home buyers to access the housing fund through changes to the national housing fund management plan on April 10.
Dep. Prime Minister Hyun was quoted at the meeting of a group of Korean correspondents in Washington on April 17 as saying, “(The Korean housing market) is feared to be falling into deflation, as Japan suffered (a bubble bust) in the past.”He noted that that is the reason the government has came up with the supplementary budget and real estate stimulus measures. He came here to participate in the semiannual meeting of the International Monetary Fund and World Bank and the G20 finance ministers’ meeting on April 18-20.
Hyun went on to say that the current situation of the national economy is somewhat in an economic circle, but it is also caused by a decline in growth potential, so short-term measures to create jobs and turn around the economy as well as structual approaches, including boosting of employment and restoration of the middle class are required.
The deputy prime minister said, “A weaker Japanese yen relatively appreciates the Korean currency, affecting our exports, and we‘ll employ policies to support SME exporters suffering from difficulties rather than intervening in the foreign currency market.”