South Korea’s notable economic advancement over recent years was largely attributable to its conglomerate-led and export-oriented growth model, backed by sound fiscal and monetary policies and intense investment into physical and human capital, according to an international report.
Asia’s fourth-largest economy, however, has also exposed some chronic structural weaknesses such as market monopolization by conglomerates, discrimination in the job market, and elderly poverty.
In a biannual economic survey released Wednesday, the Organization for Economic Cooperation and Development approved of the Korean government’s economic policies over the past two years, underlining the country’s rise as the world’s sixth-largest exporter.
“The Korean economy grew 3.1 percent last year, on the back of strong global trade, semiconductor demand uptrend, and supplementary state budget. It is expected to keep up a 3 percent growth throughout 2018 and 2019,” the report said.
The incumbent Moon Jae-in administration’s “income-led growth” paradigm -- taking shape in the form of expanded employment in the public sector, increased state spending on welfare, and minimum wage hike -- was also viewed as an effective way to boost household income and consumption in the private sector.
The country’s spending expansion was a timely response to an ageing society, but back-up measures in the tax sector -- such as a gradual increase in value-added tax rates -- may be necessary in order to secure the financial resources, the report claimed.
While expressing concerns over gender inequality and the discrimination between regular and irregular workers, the report reserved detailed feedback on the impact of the legal minimum wage, citing the uncertainty in the early stage of implementation.
“Extra attention needs to be paid on productivity improvement nevertheless as the heightened personnel expenses due to the wage hike may potentially weaken (labor) competitiveness,” it said.
“(The government) needs to assess and reflect the consequences of this year‘s 16.4 percent hike before deciding on further hike moves.”
The organization viewed Seoul‘s monetary policies as positive, claiming that it should maintain its current flexible stance, keeping an eye on Washington’s interest hike timeline.
“While (Korea) should gradually alleviate its level of monetary easing through policy rate hikes, the related details should be decided in consideration of various factors,” the report said.
Korea’s high foreign exchange reserve was also seen as proof of the country‘s resilience to external factors. The country’s foreign currency reserve total stood at $397 billion as of the end of last year, up from $240 billion from a year earlier and over threefold of its short-term debt total of $116 billion, according to the Ministry of Strategy and Finance data.
“Conglomerates have performed a key role in Korea’s growth history by actively promoting exports and still continue to lead the country’s economic order,” the report said, pointing out that the top 30 corporate groups account for two thirds of manufactured goods shipments and one fourth of service industry sales.
“But in the wake of globalization and technological advancement, the ‘trickle down effect’ has gradually diminished,” it said, pointing to side effects such as market monopolization, corruption of the owner families and infringement of shareholders‘ interests.
In line with the government’s policy target to encourage innovation and employment through small and medium-sized enterprise channels, the OECD underlined the need to lift regulations and expand technology-based loans.
By Bae Hyun-jung (email@example.com)