South Korea | S. Korea's Park casts new image, but races against time to fix looming economic crisis

S. Korea’s Park casts new image, but races against time to fix looming economic crisis

April 29, 2016 12:15 PM (UTC+8)

 

SEOUL–South Korean President Park Geun-hye, shell shocked by her party’s loss of a majority in the April 13 parliamentary elections, is recasting her image as a more compromising leader.

With fewer than two years to go in office, she’s signaling some important changes in her style of leadership, offering regular policy dialogue to opposition leaders, and allowing her own party more internal freedom and independence to speak out and supervise her administration.

Park Geun-hye
Park Geun-hye

In short, she appears to be readying for a more collegial form of running state affairs, allowing her critics to air views that may run contrary to her own. This was clearly not the case in the previous three years of her administration. And that was one reason why her ruling Saenuri party lost its majority in the single chamber National Assembly, gaining 122 seats in the 300-member parliament. It was the first time in a long while that the government was given the mandate to rule with an outsized opposition.

Speaking at a luncheon with the nation’s top media editors on April 26, Park said she was ready to accept the popular mandate of three-party system. “I believe we should meet, talk, compromise and negotiate to run the country within the framework the voters have chosen,” she said. Days later, a presidential aide told the local press that nobody running for leadership positions in the Saenuri party should use her name or wield influence to collect votes. She was taking her hands off the party now.

Future collaboration fuzzy

But less clear cut was her attitude on future working relations with the opposition camp. She did open the way for more policy consultations with other parties, but to what extent would she collaborate on major issues like North Korea and economic reform? She will clearly be more collegial and communicative than before, but how many concessions is she prepared to make?

For one thing, Park dismissed the idea of accepting what one editor described as a coalition form of government, allowing opposition parties to officially participate in the policy making process. “Our party differences are too big to accept that,” she explained. “We must make sure who should take the final responsibility for governance,” she said.

Anti-government rally in Seoul in November
Anti-government rally in Seoul in November

If that fair comment drew the line on who should call the shots on national policy, neither the principal opposition Minjoo party with 123 seats, nor the splinter group People’s Party with 38 seats, appeared overly eager to help her deal with the massive challenges facing the country. From North Korea’s ongoing security threats to the looming economic crisis descending on the country, the political establishment remains riven by deep partisan interests. Thousands of legislative bills are sitting on the floor of the Assembly while lawmakers are at each other’s throats over ideological divides, power grabs and factional interests. 

Indeed, Park was hardly mincing words when she referred to wide “platform differences.” Even on the relatively clear security implications posed by North Korea, the parties spent years before they could approve a human rights protection law for the North Korean people. Both Minjoo and People’s Party sense that Park could afford to be more flexible with the Pyongyang regime, by highlighting talks and avoiding cudgels.

Economy is biggest roadblock

Partisan division is much more substantial on how to fix the problems ailing Korea Inc. For years now, the economy has been stuck in the 2% range of growth, unable to break the sluggish pace which the government calls a “new normal.” While it is easy to blame this slowdown on a combination of plunging oil prices, global stagnation, and the rise of China, average Koreans keep on complaining about the government’s failure to push through a set of reforms that could kickstart the economy. At each election campaign, parties have never ceased to emphasize the need for deregulation and a more flexible labor market.

Park delivers speech on 2016 budget to National Assembly
Park delivers speech on 2016 budget to National Assembly

After years of negligence and buck-passing, the issue of corporate restructuring has now reached the endpoint, with shipping and shipbuilding industries facing threats of imminent bankruptcy under a massive pile of debts. President Park’s recent suggestion that Seoul should follow the US and Japan and adopt a quantitative easing program to bail out troubled firms, has fallen flat with an opposition camp unable to come up with viable alternatives. Dr. Kim Chong-in, the Minju party leader, opposes it, saying the idea of the central bank buying mortgage-backed securities ran the risk of bailing out undeserving corporations.

Reactions from the People’s Party were not only negative, they were derisive and hostile. “I wonder if President Park knows what quantitative easing means,” sniffed Ahn Cheol Soo, a former computer vaccine company president now turned party chairman. He even questioned Park’s ability to tackle economic issues, saying “We’ve got a leader who has no understanding of economy running the government,” he declaimed.

While these vituperative outbursts tend to darken the likelihood of a serious three-party collaboration, no one should underestimate the depths of crisis gripping Korea on multiple fronts. One time-bomb ticking is ballooning household debts that have now has reached an astronomical scale of 1200 trillion won, forcing an average family to set aside a quarter of disposable income for servicing home loans and consumer finances.

Shipping, shipbuilders sink

If that doesn’t focus the nation’s attention, the government is also racing against time to save titanic shipping and shipbuilding corporations who could go bankrupt at anytime. Pressed by a global slump and depressed prices, they have borrowed trillions of won to keep them afloat. This, in turn, has shaken the state-owned banking institutions.

As part of a restructuring drive, a government task force is asking shipping giants like Hanjin Shipping and Hyundai Merchant Marine and Co., two of the country’s biggest liners, to renegotiate and lower their charter fees or seek merger. The same task force is grappling with another potential collapse with catastrophic consequence: the crisis in the country’s shipbuilding industry, where giants like Hyundai Heavy Industries, the world’s biggest, and Daewoo Shipbuilding and Marine Engineering, are tottering under massive debts due to global plunge in demand. The industry and government estimate they would need a trillion-size bailout program to keep it afloat. This is where President Park’s quantitative easing suggestion comes in.

Hyundai shipyard
Hyundai shipyard

While these problems are gripping the government’s attention during a sensitive post-election period, its sluggish response to other economic agenda like labor market reforms and deregulation in the service business sector have not escaped the attention of an increasingly frustrated public. For policymakers, headaches are spreading to other areas like construction, steel and petrochemical sectors. Traditionally, these have been Korea’s bread-and-butter industries. But they are now buckling from China’s low-cost competition, just as South Korea displaced Japan in the shipbuilding sector four or five decades ago.

Politics vs. economic sense

“We have wasted a lot of time on undertaking restructuring,” conceded Lee Seung Yoon, a former deputy premier for economic management, commenting after a meeting of retired economic czars in the heat of the crisis talks. He said the country has allowed politics, not economic sense, to prevail on discussions on reform. It was as true then as it is now.

While politicians and bureaucrats dither, South Korea’s notoriously militant organized labor groups aren’t waiting. As reports spread of thousands of shipyard workers being laid off this summer, the industrial cities of Ulsan and Koje, once teeming with workers and shops, are emptying. Their workers are on their way to Seoul to protest. Even so, none of the three political parties has yet come up with comprehensive plan — other than installing yet another spokesman on economic matters.

In the midst of this continuing blame game, a ranking member of Ahn’s People’s Party was proposing to organize a new parliamentary hearing on “political abuses” allegedly perpetrated by the Park and previous administrations. As far as he was concerned, living up to Korea’s long-standing politics of wreaking vengeance on erstwhile enemies was more urgent than fixing the economy.

With the entire political process embroiled in a power game and personal aggrandizement, South Korea’s much-vaunted democracy has clearly reached a crossroad. In the past three and a half decades since the end of military rule, the country has managed to peacefully change government every five years. But that’s hardly a consolation for a nation reaching the 11th place in the global GDP ranking. Political dysfunction is eroding the country’s capacity to deal with a new set of challenges. One of them is the end of economic paradigm based on export-reliant economy, and inability of political leaders and system to come up with a new paradigm to replace it is keeping the country stuck in the past.

At the end of March, the Bank of Korea announced that the country’s per capita income stood at $27,340 in 2015, a drop of 2.6% over the previous year and once again falling short of the magic number of $30,000 promised by a succession of governments. Korea was stuck in what economists call a “middle-income bracket” for the ninth year, the Yonhap News Agency commented ruefully. With President Park’s approval rate dropping to a 32% level, average Koreans might be forgiven for thinking that politicians are to blame for this laggardly pace. 

Shim Jae Hoon is a distinguished Korean political analyst and commentator who served as Seoul bureau chief of the Hong Kong-based Far Eastern Economic Review.

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