South Korea's Finance Ministry on Wednesday unveiled a three-year blueprint to boost its potential growth rate amid mounting worries about the economy being trapped in low growth that may stem from aging population and lackluster investment in the private sector.
Finance Minister Hyun Oh-seok said at a meeting with economy- related ministers that it still had a long way to go to "exit from low growth,"noting that the three-year economic innovation plan will be centered on enhancing structural and chronic problems inherent in the economy.
The export-driven economy developed more rapidly than any other Asian emerging economies, with its trading volume topping 1 trillion US dollars for three straight years.
The rapid growth, however, entailed various side effects such as chronically flagging domestic demand caused by heavy dependence on large-size exporters, fast-follower growth strategy with lack of innovation and rent-seeking behavior or abnormal business practices.
To cure the structural ailment, the economic restructuring plan will focus on normalization of abnormal practices, invigorating the so-called creative, innovative economy and balanced growth in domestic demand and exports.
Normalizing the abnormal practices targeted public corporations, which saw their debts exceed sovereign debts. A total of 12 public corporations, including the Korea Electric Power Corp. and the Korea Land and Housing, were listed as priority control targets as the public agencies were criticized for lax management and massive debts.
New revenue sources will be secured by bringing out the so- called underground economy into the open area and making the fiscal expenditure more effective and transparent. The plan aimed to improve unfair business practices between large and small companies, while seeking to support underprivileged economic subjects.
To stimulate the creative economy, which South Korean President Park Geun-hye advocated at the very beginning of her presidency, a convergence among technologies and industries will be encouraged to make local companies reborn as a global innovator, escaping from the current image of fast-follower.
Promising service industries, including healthcare, finance, education and tourism, will be fostered through overall review on regulations in order to boost domestic demand-oriented sectors and balance growth between domestic demand and exports.
The economic renovation plan was already heralded by President Park. The South Korea's first woman leader said in her first New Year's address on Jan. 6 that if the plan is to be implemented as scheduled, the potential growth rate will rise to the 4 percent range, with the hiring rate advancing to 70 percent and per-capita national income growing to 40,000 US dollars.
Park's pledge was in a roughly right direction as it sought to rectify structural problems and boost innovation of businesses. Boosting the potential growth was urgent as the Asia's fourth- largest economy was feared to fall into the middle income trap, which means an economic development gets stuck at a certain level amid population aging and lackluster corporate investment.
The Organization for Economic Cooperation and Development forecast that South Korea's potential growth rate may plunge to around 1 percent some 25 years later due to the rapid population aging and the expected drop in productive population. The potential growth rate was estimated at about 3.5 percent among local economists.
In theory, potential growth rates can be raised by putting more production factors such as capital and labor into an economy, but it may not be applied to the South Korean economy as it already rose to the status of the near-developed economy.
Improving productivity of labor and capital is another way of lifting the potential growth. The creative economy, which aims to create new ecosystems of high value-added industries by converging technologies, was expected to help the economy exit from the low growth trend.