SEOUL -
President-elect Lee Myung-bak is set to take
office next month facing a slowdown in South
Korea's economic growth amid fears the US economy
could fall into a recession and drag down the rest
of the world with it.
Lee, who won the
presidential election in December with pledges to
revitalize the world's 13th-largest economy, faces
the tough task of hitting growth targets made
during his election campaign while the country's
central bank is committed to combating heightening
inflation pressures, many analysts say.
Inflationary pressures are growing as
crude oil prices hit the US$100 level and higher
international agricultural commodity
prices push up domestic
prices. The price of Dubai crude oil, South
Korea's benchmark, has jumped 56.1% to US$89.29 as
of January 2 this year, compared with $57.21 on
January 3, 2007.
The strain over
consumer-price inflation was etched across the
faces of chief aides for Lee's transition
committee last week as they cut this year's growth
target to around 6% from the 7% pledged by the
president-elect during his campaign.
Lee
followed this up on Monday when he pledged at his
New Year's press conference to facilitate 6%
economic growth this year rather than 7%. The
South Korean economy is estimated to have grown by
around 4% last year.
"Achieving a 7%
growth rate this year might be difficult, but I
believe that achieving 6% is feasible by actively
inducing investments and increasing the number of
jobs," said Lee, whose five-year term begins on
February 25. "I will not promote irrational
measures that will cause excessive budget
spending."
As the next government aims to
persuade companies to spend more and create jobs -
Lee has promised to create more than 600,000
additional jobs and resolve the issue of income
polarization during his five-year term - an
expected rise in consumption would keep inflation
pressure up, Hwang In-seong, a senior researcher
at Samsung Economic Research Institute.
"It's very difficult to achieve growth and
tame inflation at the same time," said Hwang.
Lee will have to contend with country's
central bank to achieve his growth targets,
analysts said.
"One of Lee's most
formidable challenges will be the very hawkish
Korean central bank," said Daniel Melser, an
economist at a research unit of Moody's Investors
Service, in a report before Thursday. "The [next]
government will need to negotiate a new compact
with the central bank - which remains one of
Asia's most difficult to understand - regarding
the domestic economy.''
Some analysts have
said the bank will stick to its policy of fighting
against inflation, regardless of the next
government's pro-growth policies.
"Despite
the new government's inauguration, there will be
no change in the duty and role of the central
bank," the Bank of Korea governor told reporters
on Thursday.
"Respecting the Bank of
Korea's independence will help the new government
implement its new economic policies," he said, but
emphasized there would be no "conflict" between
the central bank and the incoming government.
President-elect Lee is expected to appoint
three new members to the central bank's
seven-member policy board in April.
After
leaving its benchmark rate unchanged at a
five-year high of 5% last week, Bank of Korea
Governor Lee Sung-tae admitted that inflation is
already running at an uncomfortably high level.
Last month, consumer prices surged 3.6% from a
year earlier, the sharpest gain in more than three
years.
The central bank has said inflation
will likely accelerate to 3.3% this year, compared
with a 2.5% increase last year.
With oil
and raw material prices going up, companies began
hiking their retail prices of almost every food
product ranging from wheat flour to milk to a
popular Korean dish called jajangmyeon,
which consists of wheat noodles topped with a
thick sauce made of a salty black soybean paste.
This month, CJ CheilJedang Corp, South
Korea's biggest food processor, raised the price
for 3 kilograms of wheat flour by 28.8% to 4,470
won (US$4.78). It has forced most restaurants in
Seoul to increase the price for a bowl of the
Korean dish to 3,500 won from 3,000 won, the
nation's mass-circulation daily Chosun Ilbo
reported last Wednesday.
Normally, a
central bank raises interest rates to rein in
inflation or cool the economy. So, such strength
in prices will make it difficult for the Bank of
Korea to cut interest rates.
This would
put President-elect Lee's pro-growth "747" plan in
a dilemma, analysts say, because they don't expect
the central bank to take an unusual
monetary-policy step of slashing interest rates to
help the next president when prices are strong.
Lee, a former star executive at Hyundai's
construction company nicknamed "The Bulldozer" for
his firm determination to get things done, has
pledged to increase economic growth to 7% a year,
double per-capita income to $40,000 by 2017 and
eventually make South Korea the world's
seventh-largest economy.
"The goal of a 7%
growth rate was set to be achieved within my
five-year tenure or the next 10 years in the long
term," President-elect Lee said on Monday. "I
presume that it will be difficult for the new
government to take full charge of national
finances this year as the New Year budget has
already been set and the parliamentary elections
are slated for April."
Lee won last
month's presidential election by a landslide,
capitalizing on the public's frustration over what
critics say was a slack economic policy under the
incumbent Roh Moo-hyun government.
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