2019/6/7 South Korea defends economic restructuring despite growth fears | Financial Times

South Korea
South Korea defends economic restructuring despite growth fears
Pressure builds on government to shift strategy as investment slides

Moon Jae-in's administration is under pressure to provide more support for the large companies, the chaebol, that drive the country’s economy ©
AP

Edward White in Seoul YESTERDAY

South Korea has no plans to step back from efforts to restructure the economy away from its
reliance on big corporates such as Samsung and Hyundai, despite rising fears over slowing
growth, according to the president’s top economic adviser.

Economists expect Asia’s fourth-largest economy this year to grow at its slowest rate since 2012
as the US-China trade war threatens to exacerbate a downturn hitting electronics exports. That
has raised the pressure on the government of President Moon Jae-in to provide more support
for the companies, known as chaebol, that drive the country’s economy.

Yoon Jong-won, senior presidential secretary for economic affairs, conceded growth in 2019
“might be lower than we expected”, but rebuffed calls to change course by giving more targeted
support to export industries or significantly boosting fiscal spending.

“I don’t think the current level of the business cycle is forcing the government to spend more
than we expected,” Mr Yoon told the Financial Times in an interview.

Since taking office in 2017, the Moon administration has embarked on a big shift in economic
direction to address income equality and wean the country from its dependence on the chaebol.
It raised taxes and the minimum wage and capped working hours, hoping to boost consumption
and employment. It also increased subsidies and tax incentives for small businesses and start-
ups in a bid to spark more growth for non-chaebol sectors.

“This is our growth strategy, it is not based on nurturing large conglomerates,” Mr Yoon said.
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2019/6/7 South Korea defends economic restructuring despite growth fears | Financial Times

First-quarter GDP fell 0.4 per cent compared with the previous quarter, according to data
published this week, representing the worst decline since the global financial crisis. The
slowdown has been in part caused by a global decline in demand for semiconductors, which
make up a fifth of the country’s exports, as well as the slowing Chinese economy.

But with the official data also showing investment has declined for four consecutive quarters,
analysts have expressed concern Mr Moon’s policies have also weighed on business sentiment
and spending.

Paul Choi, head of South Korea research for CLSA, said the deterioration in the business
environment was “very clear”.

“They have rolled out a lot of economic policies that disincentivise businesses and the
businesses have responded by cutting investment,” he said.

Seoul has announced additional fiscal stimulus, and is pushing for more local government
spending and expediting plans for deregulation, Mr Yoon said.

“If the size of the global decline is bigger than our expectations, so as to affect our growth, we
will devise further expansionary policies,” he said.

Analysts, however, said a stronger response was needed.

Trinh Nguyen, senior economist at Natixis, was “worried” about South Korea because other
countries in the region, including China, were boosting industrial competitiveness with targeted
support.

“The Korean economy is having a very tough year. To reverse this, the economy needs a much
more aggressive industrial policy and fiscal reforms than it currently has to boost
competitiveness and address structural weakness,” she said.

Additional reporting by Kang Buseong

Copyright The Financial Times Limited 2019. All rights reserved.

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