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[Editorial] A new approach

Substantial policy changes should accompany replacement of presidential economic aides

The government is likely to lower its 2019 growth target when it unveils economic management plans for the second half of the year early next month.

So far, the Ministry of Economy and Finance has been expecting South Korea’s economy to expand between 2.5 percent and 2.6 percent this year.

Ministry officials now seem set to cut the growth target range by 0.1 percentage point or slightly more in the face of a delayed rebound in the prices of chips, a major export item for the country, and the escalating trade dispute between the US and China.

But even with a downward revision, the ministry’s outlook may still be too rosy -- most think tanks and financial institutes at home and abroad have already sharply slashed their growth estimates for Asia’s fourth-largest economy. Some economists predict Korea’s economic growth rate will fall below 2 percent this year amid slumping exports and investments.

According to customs data released last week, the country’s exports decreased 10 percent in the first 20 days of June from a year earlier to $27.2 billion, making it almost certain that the decline that began in December will continue for an extended period. Average daily exports, which reflect the number of working days in a given time frame, shrank at a faster pace -- 16.2 percent -- recording only $1.88 billion.

A steep fall in exports and facility investment resulted in the country’s economy contracting 0.4 percent in the first quarter of the year from three months earlier, marking the worst performance in a decade.

In a reflection of worsening business conditions here, overseas direct investment by local companies reached a record high in the January-March period, while domestic investments continued to fall.

The growing corporate exodus has exacerbated the country’s unemployment, with the number of jobless people standing at its highest level ever of 1.24 million in May.

These gloomy economic conditions appear to have prompted President Moon Jae-in to replace his top economic aides last week.

He appointed Kim Sang-jo, chief of the Fair Trade Commission, and Vice Finance Minister Lee Ho-seung as new presidential chief of staff for policy and senior presidential secretary for economic affairs, respectively. Their predecessors served for less than a year.

What Moon and his ruling Democratic Party of Korea need most in the runup to the next parliamentary elections, set for April, are improved economic and employment conditions.

By repeatedly emphasizing the need to ensure tangible results from policies implemented since he assumed office in May 2017, Moon is revealing his sense of desperation.

As critics note, it is hard to expect a mere personnel reshuffle unaccompanied by a fundamental policy shift to be instrumental in reinvigorating the sluggish economy.

Over the past two years, the Moon administration has pursued an income-led growth policy with the aim of spurring growth by increasing household income and consumption. But pro-labor measures taken in line with that policy, including steep minimum wage hikes, have only led to the loss of low-paid jobs and reduced income for less privileged households, as companies have cut their payrolls.

Coupled with regulatory restrictions and other anti-business practices, the misguided policy has also driven local companies, especially manufacturing exporters, to invest more abroad and less at home.

The replacement of two presidential economic aides can hardly be viewed as a signal that the income-led growth initiative is on its way out. A spokesperson for Moon said the outgoing figures had done much to advance the administration’s core policy line.

Rather, the personnel reshuffle is seen as an attempt to deflect criticism of its poor economic performance by shifting the policy focus to building a “fair economy.”

Based on his two years as chief of the country’s antitrust watchdog, Kim can be expected to continue to emphasize reforms of big business while strengthening support for low-income households and smaller firms, mainly by expanding fiscal expenditure.

Moon may be hoping that this approach will consolidate support for the ruling party ahead of the upcoming parliamentary elections. If so, it is likely that he will end up squandering his last opportunity to rid the economy of domestic policy risks amid mounting external uncertainties.

His economic team should focus on forging a more corporate-friendly environment by ditching the ill-conceived policy and by accelerating deregulation to promote innovation-driven growth.

Addressing concerns expressed by the business community about his appointment, Kim said he intended to exercise “enough flexibility” in complementing policies and readjusting priorities.

He should turn his ambiguous rhetoric into substantial steps toward easing the economic woes faced by the country.