Chaebols, an aging population, and an erratic northern neighbor are going to keep the new South Korean finance minister busy.
South Korean President Moon Jae-in has named a new economy and finance minister. Hong Nam-ki, a former director general of the Ministry of Finance, joins a team attempting to boost growth and, along with it, the presidential approval rating, which has declined to a record low—for Moon—of less than 50%.
With growth stuck at 2.7% in 2018, according to government statistics, the cabinet has also decided to front-load about $250 billion of the 2019 budget in the first half of the year. That’s a shift in focus for the Moon government, whose signature initiative was a peace agreement with North Korea, and which has touted exports to the North and other benefits of economic integration. The leadership in Pyongyang has been an erratic partner in the talks, however, and a unified Korea would require significant investment on Seoul’s part.
But the government faces more-pressing economic concerns. An aging population and promises to expand the social safety net mean growing fiscal commitments in the near future. Another challenge, receiving mounting attention, is the Korean conglomerates, or “chaebols”. These giants play an outsize economic role, even though the vast majority of Korean employees work for smaller businesses. Since small and midsize companies serve as an engine for employment, some voices are calling on the government to adopt structural reforms that would better support this segment. Yet the chaebols are more profitable. According to Statistics Korea, only 0.3% of South Korean companies are large, but they accounted for 48% of total corporate profits in 2017.
Other major downturn risks include political and trade tensions with the US and China. Seoul needs a Washington-Beijing trade truce to protect its exports to China. “Asia’s trade landscape is at a critical juncture,” a recent report by the Asia Society concludes. China’s economic dominance in the region is widely perceived as a growing threat to South Korea. Hong Nam-ki’s new job, at minimum, will be to secure the country’s status as an innovator.
