By Jaeho Jeon
The South Korean economy is drifting like a ship which has lost its captain while the ‘Choi Soon-sil Scandal,’ a civilian who has no official title, has shaken South Korea for over a month. President Park Geun-hye’s approval rating has fell to 4 percent, an all-time low for elected Presidents in South Korean history. In some areas of the country, President Park’s approval rating was zero percent.
Disappointed people are holding protest rallies almost every week. The latest fifth round of rallies demanded the resignation of President Park and is estimated by the organizers to have been attended by 1.9 million people from all over the country. As President Park suffers from pressure to retreat, Korea’s economic indicators are weakening.
Korea’s unemployment rate in October was 3.4 percent, the highest level since 2005. The reason for the increase in the unemployment rate is that the number of workers in the manufacturing industry declined by about 110,000 due to sectoral restructuring. In particular, the unemployment rate for young people, aged between 15 and 29, was 8.5 percent. It is the highest since 1999, when it was 8.6percent. Household debt, is estimated to have exceeded 1,300 trillion won or $1.1 billion, and the economic growth rate for next year is expected to be lower than previously forecasted. The Bank of Korea estimates next year’s growth rate will be 2.8 percent, and the IMF and the Korean government expect 3 percent each, though the OECD has recently downgraded its forecast to 2.6 percent.
While the President is in fact having difficulty in carrying out her duties, the political situation also affects Vice Prime Minister and Finance Minister Yoo Il-ho’s ability to play a role. President Park nominated Lim Jong-ryong, chairman of the Financial Services Commission, as his successor on November 2. The leading opposition party, however, has opposed holding a hearing on his nomination for nearly a month. Yoo, who is scheduled to retire soon, is in fact a lame duck, but his successor is delayed and various policies are drifting.
At the end of each year the government announces ‘Economic Policy Directions’. The economic policy direction is designed to determine the main policies that the government will pursue during the year. As the president is experiencing a political crisis and the uncertainty about who will become Vice Prime Minister and Finance Minister, public officials face confusion and there is a lack of a clear policy direction.
Several policies that the government announced to push for this year are not being pursued because of the leadership void. The government announced that it will push for labor reform that will loosen the labor market this year, but it has lost its driving force. In addition, restructuring of the steel, shipbuilding, shipping, and chemical industries is not getting any better. These industries have been sluggish due to oversupply and economic downturn. The government has decided to minimize the impact on the market by inducing restructuring in these industries.
The problem is the difficulty in predicting how long the absence of leadership will continue. Most people and opposition parties, as well as some ruling party lawmakers, have demanded the immediate resignation of President Park. In the worst case, such a conflict could last to the end of President Park’s term in February of 2018. The external environment surrounding the Korean economy is not favorable at present. The U.S. plans another interest rate hike, and China, the largest destination for Korea’s exports, is experiencing a slowdown in economic growth. The unfavorable external environment and the lack of leadership have put the Korean economy at a crossroads. With this in mind, political leaders in South Korea should seek to resolve the current political standoff as soon as possible for the sake of the economy.
Jaeho Jeon is a reporter at ChosunBiz and a visiting fellow at the Korea Economic Institute of America. The views expressed here are the author’s alone.
Photo from SarahTz’s photostream on flickr Creative Commons.