Korea is looking forward to the new year with
tempered optimism following a difficult 20-15. The problem is that many of the economic uncertainties
that dogged Korea last year look set to persist for the time being.
To get an expert’s take at what the next twelve months might hold for the Korean economy,…
our Hwang Ji-hye sat down with the president of the Korea Institute for International Economic
Policy. “The Korean government focused a lot on boosting
domestic demand last year and that was because of the slowing exports.
But conditions are not looking so bright this year, either.
What’s your take on the export outlook this year? “Exports most likely will not decline. Last
year what happened was… exports declined because of the oil price decline. Obviously
there has been other factors like the slowdown in EMs as well as in advanced economies. This
year, most likely, the drop itself will not take place because it’s already at the bottom.
So as they bottom-out, the growth rate itself will not fall, but it will not actually recover
to where it was last year. So, looking at our market or exports overall,
we are actually running out of time. Traditional export strategy has run its course. It has
served as well. But we are now entering a new global environment, and we need to come
up with a new revised strategy for exports.” “Because the growth in the second half was
mainly driven by the government, people are now concerning about a drastic drop in spending
early this year. Do you also agree with that notion? “No. I don’t think that we will see a sharp
drop in consumption because consumption is something that is dependent on our livelihood.
Whether we can maintain the two percent in terms of consumption growth, that’s a question
we have to seriously ask about. “Then where do you think Korea should focus
most on?” “Value creation. It’s actually a very highly
charged word. Because of technology, globalization and you name it, these various combinations,
have actually led to a situation where the global economy can produce things for everyone
with much less people. And that essentially means lower wage share.
Lower wage share means less income. Less income means less consumption and thus less investment
needs. And thus, we have actually entered a vicious cycle where the economy doesn’t
work anymore. So essentially we have capital and labor,
we need to optimally allocate those. And because we’re running out of labor, locally, in 10
to 20 years, we need to diversify our capital outside. “But won’t that create asset outside of the
country, not inside of the country since like factories… or other value creation is taking
place outside of Korea? “That’s why at the same time we have to ensure
that our business environment is friendly so that foreign capital can actually come
into Korea whatever their competitive advantage is. At the moment, that’s not taking place.
We need to level the playing field between large and small between foreign and domestic
companies. We need to make the labor market more flexible. It has to have much easier
solution in terms of the processes in dealing with labor problems because many companies,
foreign companies are staying out, because of this issue.” “So, creating a business friendly environment
is I guess crucial… thank you so much for your time today.”