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Today, with Professor Choi Jin-bong at SungKongHoe University, we’ll discuss potential tasks of Moon’s second economic team, which seems to be moving quickly in a bid to boost the slumping economy. First, Professor Choi explains why the government has launched a new economic team. 

Along with growing economic uncertainties, apparent discord within Moon’s first economic team stoked concerns among the public. I think the government found it necessary to dispel public concerns by introducing a new team. 

Deputy prime minister for the economy Hong Nam-ki will lead the second phase of Moon’s economic policies, with presidential chief of staff for policy Kim Soo-hyun assisting Hong. 

The previous team was more about a double-tier leadership system, which generated controversy over internal conflict. But the new team will be a single-tier system, with more authority given to Hong, for more consistent and efficient policy planning. 

The key phrase for the new team is “reform with stability.” President Moon replaced his economic team last month, 18 months after his inauguration, at a time when the Korean economy faces many challenges amid troubling economic indicators. 

Depressing economic indicators show that the economy is in bad shape. According to the Korea Development Institute’s fourth-quarter report, the Korean economy is expected to expand 2.6 percent in 2018 and grow at a slower pace of 2.5 percent in 2019. This year’s growth forecast is 0.2 percentage points lower than the same institute’s third-quarter projection at 2.8 percent, indicating a bleak outlook for the local economy. 

Global institutions also present a gloomy growth outlook. Moody’s Investors Service, for example, predicts that the Korean economy will grow 2.5 percent this year, putting next year’s estimate at 2.3 percent. The figures are lower than its growth forecasts for G20 economies at 3.3 percent this year and 2.9 percent next year. 

The Korean economy is feared to be entering a downturn phase. According to the industrial output data for September by Statistics Korea, the nation’s overall industrial production represented its sharpest drop in more than five years since March 2013. 

Consumption, which saw a slight recovery for three straight months, has plunged again. Retail sales in September fell 2.2 percent from the previous month, marking the biggest drop since December last year. 

The employment situation is still pretty serious. Although the number of jobs created in November increased 165-thousand from a year ago, new jobs in manufacturing have decreased for eight consecutive months. 

Fortunately, economic recovery is being maintained by robust exports. Still, the new economic team is faced with a number of challenging tasks, including the highly controversial minimum wage scheme. 

The business community takes issue with the Moon government’s two major economic policies—shorter working hours and higher minimum wage. The two schemes have caused trouble for businesses, especially small-and mid-sized firms. Hong Nam-ki, the new head of the economic team, says that it is necessary to approach those two contentious issues in a more flexible way, although he is still likely to maintain the Moon administration’s income-led growth policy.

Discussions are under way to expand the flexible work hour system, which is currently allowed for up to three months. The government may possibly address issues like this in the near future. 

To resolve the most urgent task of revitalizing the economy, the new economic team has to settle the two issues—the 52-hour workweek and the minimum wage hike—, which are known to increase burdens on businesses. During an economic meeting on December 12, Hong mentioned the need to adjust the pace of executing the two plans. 

And on December 17, he unveiled an overall economic policy for next year, including a plan to frontload 70 percent of next year’s planned budget in the first half of 2019. 

Frontloading is not unusual, but the percentage is the highest since 2013. The previous government committed 65.4 percent of its budget in the first half of 2014 and 68 percent in 2015. The current government’s plan to allocate 70 percent of the budget in the first six months of next year has the purpose of boosting the economy quickly by injecting money. Hong said that the government would revive economic vitality first and encourage companies to increase their investment during the crucial period of the first half of next year. 

Judging from Hong’s remarks, the first half of next year could determine whether the Korean economy will rebound to the positive side or fall into a recession phase. The economic team’s biggest task is to produce results in the first six months of next year by speeding up the execution of the budget injection. 

The National Assembly has approved the government’s 469.6 trillion won budget—the largest-ever—for 2019. It is roughly 416 billion US dollars. And the Cabinet has endorsed a plan to frontload 70 percent of the planned spending based on tax revenue in the first half of next year. In particular, the government plans to commit 78 percent of the job-related budget in the same period to increase quality jobs. In short, the government seeks to revive the economy through an active fiscal strategy. 

Considering the grave situation of the local economy, however, the government should also focus on innovative growth, in addition to the financial injection. 

The second economic team has been launched in a difficult situation. On the flip side, though, a small positive result will therefore lead to high praise. For that purpose, the team should concentrate more on innovative growth, with the basic frame of the current income-driven growth policy kept intact. To promote innovative growth, the government must listen to the opinions of businesses and solve their problems.

Some of Korea’s key industries have lost steam, so it’s necessary to find new growth engines by investing more in innovative, promising companies. Laying the groundwork for future growth is the topmost task of the new economic team. 

During his inauguration ceremony on December 11, Hong stressed the importance of “results” of economic policies. Faced with a mountain of tasks, his team has just taken the first step. We’ll have to wait and see how it will navigate the rough waters ahead.