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(News Focus) 3-yr innovation plan focuses on growth potential through reform, deregulation

2014/02/25 10:46

By Koh Byung-joon

SEJONG, Feb. 25 (Yonhap) -- President Park Geun-hye's three-year economic innovation plan unveiled Tuesday reveals the depth of the administration's concerns about the current economic conditions and future direction of the economy in the years to come.

The plan also reflects a sense of urgency shared by policymakers that the economy is fast losing its growth potential and that if longer-term measures are not taken to tackle deep-rooted problems in society and the economic structure, things could change for the worse at any time.

Analysts agree that the government did its best to present broad policy directions on diverse pending issues facing the country's economy, but they cast doubt over whether it is feasible to carry out all that have been laid out in the relatively short given period of time.

They point out that the government has far less power in enforcing economy-related policies than it did decades ago when growth was driven mostly by government planning.

Marking the first anniversary of its inauguration on Tuesday, the Park Geun-hye government unveiled the much-anticipated three-year innovation plan with three broad objectives: strengthening the economic fundamentals by "normalizing abnormalities," pursuing a dynamic and innovative economy, and achieving a balance of domestic demand and exports.

The plan enumerates 100 individual detailed tasks designed to attain those objectives, and they are focused heavily on reforming regulations to boost domestic demand, including corporate investment, restructuring debt-ridden public organizations and

reviving the slowing growth potential, an overshadowing problem for Asia's fourth-largest economy.

The plan was borne out Park's New Year's speech in January, during which she mentioned the term "three-year economic innovation" for the first time. Analysts immediately drew comparison with her father, late President Park Chung-hee, whose economic campaign was centered on his five-year economic development plans.

"The future three to four years will serve as a watershed moment that will determine the direction of our economy," Vice Finance Minister Choo Kyung-ho told reporters in a briefing. "Things are not favorable for our future, given the deep-rooted and structural problems that have cumulated layer upon layer."

   Reform is a key word in the three-year plan as the government sees "abnormalities" deeply embedded in society and the economic structure seriously hurting the country's growth potential.

In particular, the government is set to work on the public sector mounted with growing debt problems along with chronic and long-running lax management styles that are behind the times in today's fast-changing business environment.

The government is demanding that public organizations sell non-core assets and streamline business structures to bring the "normalization" drive to success. It also plans to introduce a cap on the total amount of debt that they can issue to bring their vexing debt problems under control.

Overlapping or similar businesses will be streamlined, and the government will push to enhance efficiency by introducing "competition" in the public sector, which has enjoyed near monopoly.

Regulatory reform is another major theme as the government wants to boost corporate investment through deregulation and achieve an economy where domestic demand and exports are "balanced."

   In a related move, a cap on the total number of regulations will be introduced in order to put a lid on the excessive regulatory environment for businesses.

It will review the current economy-related regulations "from the zero point" with a principle to lift what is regarded as excessive. It will introduce a "negative list system" under which all regulations are removed except for specifically listed cases.

"We will, in particular, focus on investment-hampering regulations, excessive regulations compared with other competing countries, and regulations not reflecting technological development and environmental changes," the ministry said.

Finance Minister Hyun Oh-seok recently held back-to-back meetings with foreign business leaders and envoys during which he assured that the government will remove red tape and create a business-friendly environment and appealed for their increased investment.

Analysts generally agree with the policy direction that the government has presented.

"Almost all important pending issues were included in the plan. If they are all carried out as planned, we can expect a significant change going forward," said Cho Young-moo, a senior researcher at the LG Economic Research Institute.

Critics, on the other hand, say the government is being very ambitious by laying out so many individual policy items and that it would not be easy to carry them all out in such a short period of time, especially without cooperation from the private sector.

"The government is right in recognizing the problems facing our economy and has set its broad policy directions appropriately, but they were presented in a department store style without clarity in purpose and priorities," said Lee Young, an economics professor at Hanyang University. "What we need right now is a clear vision and principles along with key polices to push for."

   Vice Finance Minister Choo Kyung-ho acknowledged that there is a limit to the government spearheading development policies, emphasizing the need for the private sector's active participation and cooperation.

"Unlike the five-year economic development era (mostly in the 1960s and '70s) when the government could take the lead in developing each industry quite effectively, times are not such where it can lead investment and development," he said.

"The three-year innovation plan is mostly focused on providing a mechanism by which the private sector can do its job proactively and aggressively," he added.

The government is confident that if all the presented measures are carried out as planned, Korea can "be turned into an advanced economy" in three years' time.

The government painted a rosy picture for the future economy, expecting that the plan will help hike its growth potential to around 4 percent, increase the annual per-capita income level to exceed US$30,000 and even $40,000, and boost its employment rate to 70 percent.

Opinions may be divided between private-sector and government experts, but one thing they seem to agree is that "execution" is key for the success of the three-year innovation plan.

"To make a leap forward to an advanced economy and open an era of people's happiness, we need to make all-out efforts for economic innovation," the finance ministry said. "Execution is important to rectify (problems) one at a time based on our strengths and potential before it is too late."