By Park Hyong-ki
The Moon Jae-in administration has begun shifting its policy stance toward encouraging the private sector to invest and create jobs after a series of failures under his signature "income-led growth."
The Moon administration has taken a number of pro-labor measures to push for income-led growth, including hiking the minimum wage and reducing working hours, but this has only led to fewer jobs and sluggish corporate investment.
This changing policy direction is seen as Moon's desperate attempt to revive the slowing economy.
As corroborated from recent data showing sluggish private consumption and rising youth joblessness, the incumbent administration failed to boost the economy as it sought through a rapid increase in the minimum wage.
Youth unemployment is near 10 percent, with corporate investment in equipment and plants dropping 6.6 percent in the second quarter of this year, from the previous quarter.
The 16.4 percent minimum wage increase has exacerbated the situation for self-employed businesses. The rate of self-employed businesses closing down in their first year is expected to surpass 90 percent this year as the number of people who will file closures with the National Tax Service (NTS) will exceed 1 million, according to the tax agency.
The Ministry of Economy and Finance, to this end, is about to unveil its new policy direction focusing on spurring innovation in the private sector this week.
Recently, it stressed the importance of developing a "platform economy" backed by a sustainable ecosystem of startups in artificial intelligence, drones and alternative energy, following Finance Minister Kim Dong-yeon's meeting with corporate executives.
"We need to become a platform economy in the digital era," the minister told reporters last week, after meeting Samsung Electronics Vice Chairman Lee Jae-yong a couple of day earlier.
The finance ministry, which supposedly had a conflict with Cheong Wa Dae's economic team over the future policy course of the economy, is seemingly taking the advice from the International Monetary Fund (IMF).
Last year, the IMF suggested Korea "support innovation, encourage more female employment in the labor market and boost its social safety net for the elderly" in the face of declining productivity amid an aging population.
Analysts say the government should be more "flexible" in its approach to the economy, forecasting monetary and fiscal policymakers focusing on measures to stimulate private investment and consumption in the second half.
"It should move toward implementing a balanced and flexible policy by looking at both sides ― business and labor. One cannot achieve growth without the other," said Yun Chang-hyun, an economist at the University of Seoul.
The finance ministry also said it plans to increase investment to over 7 trillion won ($6.2 billion) in developing and maintaining culture and sports centers in an effort to improve welfare and boost jobs.
"This indicates its policy priority is stimulating private consumption and private investment," said Park Jeong-woo, an analyst at Korea Investment & Securities.
The Bank of Korea (BOK) is expected to "cooperate" with the finance ministry by remaining cautious toward a rate hike, even though the central bank has signaled it could raise the rate when inflation picks up and follow the Federal Reserve, the analyst added.
"This show of unity would ease future uncertainty," Park said.
The Moon Jae-in administration has begun shifting its policy stance toward encouraging the private sector to invest and create jobs after a series of failures under his signature "income-led growth."
The Moon administration has taken a number of pro-labor measures to push for income-led growth, including hiking the minimum wage and reducing working hours, but this has only led to fewer jobs and sluggish corporate investment.
This changing policy direction is seen as Moon's desperate attempt to revive the slowing economy.
As corroborated from recent data showing sluggish private consumption and rising youth joblessness, the incumbent administration failed to boost the economy as it sought through a rapid increase in the minimum wage.
Youth unemployment is near 10 percent, with corporate investment in equipment and plants dropping 6.6 percent in the second quarter of this year, from the previous quarter.
The 16.4 percent minimum wage increase has exacerbated the situation for self-employed businesses. The rate of self-employed businesses closing down in their first year is expected to surpass 90 percent this year as the number of people who will file closures with the National Tax Service (NTS) will exceed 1 million, according to the tax agency.
The Ministry of Economy and Finance, to this end, is about to unveil its new policy direction focusing on spurring innovation in the private sector this week.
Recently, it stressed the importance of developing a "platform economy" backed by a sustainable ecosystem of startups in artificial intelligence, drones and alternative energy, following Finance Minister Kim Dong-yeon's meeting with corporate executives.
"We need to become a platform economy in the digital era," the minister told reporters last week, after meeting Samsung Electronics Vice Chairman Lee Jae-yong a couple of day earlier.
The finance ministry, which supposedly had a conflict with Cheong Wa Dae's economic team over the future policy course of the economy, is seemingly taking the advice from the International Monetary Fund (IMF).
Last year, the IMF suggested Korea "support innovation, encourage more female employment in the labor market and boost its social safety net for the elderly" in the face of declining productivity amid an aging population.
Analysts say the government should be more "flexible" in its approach to the economy, forecasting monetary and fiscal policymakers focusing on measures to stimulate private investment and consumption in the second half.
"It should move toward implementing a balanced and flexible policy by looking at both sides ― business and labor. One cannot achieve growth without the other," said Yun Chang-hyun, an economist at the University of Seoul.
The finance ministry also said it plans to increase investment to over 7 trillion won ($6.2 billion) in developing and maintaining culture and sports centers in an effort to improve welfare and boost jobs.
"This indicates its policy priority is stimulating private consumption and private investment," said Park Jeong-woo, an analyst at Korea Investment & Securities.
The Bank of Korea (BOK) is expected to "cooperate" with the finance ministry by remaining cautious toward a rate hike, even though the central bank has signaled it could raise the rate when inflation picks up and follow the Federal Reserve, the analyst added.
"This show of unity would ease future uncertainty," Park said.
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