ⓒ YONHAP News

The South Korean government has unveiled a set of measures aimed at reinvigorating the sluggish economy. Announced by Deputy Prime Minister and Finance Minister Kim Dong-yeon at an economic ministers’ meeting on October 24, the new measures are centered on ways to boost private investment and improve worrisome job numbers. Here is Lee In-chul(이인철), director of the Real Good Economic Institute, to examine what the new policy package is all about. 

The major purpose of the new measures is to breathe life into the sluggish economy. Although they are short-term focused, the measures reflect the government’s genuine efforts to improve dismal job conditions.

At present, economic situations both at home and abroad are pretty bad. Inside the nation, private investment has shrunk drastically and employment difficulties have only deepened. 

Outside the country, the trade war between China and the U.S. is showing no signs of contraction, while global financial markets are unstable due partly to rising interest rates in the U.S. Not surprisingly, economic experts present an even gloomier outlook for next year. The South Korean government probably felt an urgent need to take preemptive measures to prevent the situation from worsening further. 

The new measures have three main points—increasing jobs by injecting capital, lowering fuel taxes for a temporary period to reduce the fuel price burden for the working class and small business owners, and easing regulations to promote private sector-led investment. 

Indicative of lackluster growth, the Bank of Korea says the country’s gross domestic product in the July to September period grew only zero-point-6 percent for the second straight quarter.

The contribution of domestic consumption to third-quarter economic growth was minus one-point-1 percentage points. Facility investment, in particular, dropped one-point-4 percent on-month in August, falling for the sixth straight month. The number of newly added jobs stayed below 10-thousand both in July and August. It did increase in September, but remained at just 45-thousand. 

The government’s latest comprehensive measures are based on its assessment that it would be difficult to improve employment and investment situations in the short term. Mr. Lee explains the government’s plan to create customized jobs. 

The government plans to create 59-thousand temporary jobs at state and public organizations. Among them, 18-thousand internships will be created at various public agencies to help young jobseekers, while 11-thousand administrative positions will be added to provide better public services. 

Another 18-thousand temporary jobs will be provided to those in vulnerable situations. The new temporary positions could be extended until next year, depending on conditions. 

Currently, 9 million won is given to every new regular worker at smaller companies each year, and the financial subsidy lasts for three years to amount to 27 million won in total. Under the new measures, 10-thousand more people will benefit from the program. 

The supply of 59-thousand short-term jobs by year’s end is an emergency measure from the government to ease the difficult job situation ahead of the winter season, a historically low job-growth period.

Critics argue that short-term employment will have little impact, especially as we are just two months away from the end of the calendar year. But authorities are likely concerned that if the situation is left unattended, deteriorating employment conditions will result in a decline in income, especially for vulnerable or disadvantaged groups, resulting in a subsequent uneven distribution of income.

In addition to tailored positions at public institutions, the government will encourage private sector investment, which, it is hoped, will generate more jobs. 

Under the new measures, three private investment projects will be implemented faster than scheduled. The three projects are the 1.5 trillion won plant expansion plan in Yeongil(영일) Bay in Pohang, the development of the Yeosu-Gwangyang Port Complex and the plant expansion of the Yeosu National Industrial Complex. The government will remove obstacles for those projects to help domestic companies push ahead with their planned investments worth 2.3 trillion won or about 2 billion US dollars by the first half of next year. 

As part of efforts to boost private investment, the government will spend 15 trillion won or 13 billion US dollars. Of that, 10 trillion won will be used to improve industry, while the remaining 5 trillion won will be provided in the form of low-interest loans to small-and mid-sized firms investing in environment, security and social overhead capital. 

Also, companies that focus greater attention on the domestic market, including large corporations, will qualify for government subsidies and tax cuts. 

Along with the measures aimed at facilitating private sector investment, the government has promised to ease up on some regulations, which many have criticized the government’s execution of. In particular, it will relax rules concerning tourism and telemedicine services for residents in remote areas, and also foster “sharing economy” platforms. 

In addition, the government seeks to stimulate domestic consumption by lowering taxes on gasoline and other refined fuels. 

The government will reduce petroleum taxes by 15 percent effective for six months from November 6. It is the first fuel tax cut in 10 years, the last coming during the 2008 global financial crisis. The measure will cut the prices of gasoline by 123 won per liter, diesel by 87 won and LPG butane gas by 30 won. The six-month reprieve is expected to reduce the fuel price burden by about 2 trillion won or about 1.8 billion US dollars for the working class and small businesses that are grappling with rising oil prices and lackluster domestic demand. 

Some say that high income earners will benefit more from the discount. The government admits that the measure may not help the target population effectively. 

But it also argues for the measure’s positive effects, such as price stability and cost reduction for companies. The government says these benefits are substantial or even greater than the benefit enjoyed by high income earners. 

The government hopes that lower gas taxes will ease the financial burden for the self-employed, small firms and low-income families. The purpose of the measure, of course, is to help people increase extra money and boost consumption. 

But if international oil prices climb higher than expected, the tax break may not produce the desired effect. Also, the measure is feared to give more benefits to high-income earners, as Mr. Lee said. 

The most concerning element is that the aforementioned measures are short-term, emergency prescriptions. In other words, the government is seeking a quick-fix to the problem by burning through cash: twenty-six trillion won or roughly twenty-three billion US dollars will be needed to implement the new measures. Considering government funds that have already been poured into the economy, policymakers need to come up with a more sustainable, long-term plan. 

The current South Korean government has poured more than 50 trillion won or 45 billion US dollars into job creation alone since it took office last year. But the results have been rather disappointing. The government learned the painful lesson that finances may only create temporary, poor-quality jobs. This time, too, the government has announced short-term remedies based on taxpayers’ money, ahead of the winter season when employment opportunities typically contract. The quick fixes may improve employment figures on the surface temporarily, but it is more important to establish an environment for the private sector to create more quality jobs. 

Of course, various factors lie behind the current employment shock, including structural changes in the population and industries as well as the higher minimum wage and shorter working hours implemented by the government. The government says that it will allow companies more flextime when executing the 52-hour work week system in order to minimize potential ill- effects. It is a forward-looking policy change, though somewhat belated. 

Still, the recent measures seem to fall short of formulating a mid-and long-term policy to create jobs in the private sector. My conclusion is that jobs should be generated in the private sector and a favorable environment for investment should be formed. 

Job growth is a necessary component of improving economic conditions, and it is the private sector that drives such growth. The government says it will explore new, large-scale investment projects and finalize ways to promote new industries, including the sharing economy, before announcing another round of economic plans in December. We’ll have to wait and see what policy proposals the government will present at the end of the year.