Finance minister nominee tasked with invigorating economy to spearhead income-led growth strategy

November 9, 2018

SEJONG, Nov. 9 (Yonhap) — Struggling with weak job numbers and slack facility investment, President Moon Jae-in Friday tapped a veteran fiscal policy expert as the new finance minister who will spearhead his signature income-led growth policy.

The nomination of Hong Nam-ki, currently chief of the Office for Government Policy Coordination, comes as the South Korean economy is showing signs of a slowdown amid internal and external challenges.

Some economic data have even hinted that Seoul maybe heading towards a period of economic slump, boding ill for the incumbent administration.

“Hong will have to navigate various uncertainties, such as the growing trade standoff between the U.S. and China, higher oil prices and steady rate hikes by the U.S. Federal Reserve,” a market watcher said. He said handling all such factors is expected to test the next finance minister’s capability to the limit.

Asia’s fourth-largest economy grew 0.6 percent on-quarter in the third quarter of the year and expanded 2 percent on-year over the three-month period — the slowest on-year growth since the third quarter of 2009.

The lower-than-expected growth has led to a cut in growth estimates by many organizations.

Last month, the Bank of Korea (BOK) trimmed its economic growth outlook to 2.7 percent for 2018 from its earlier projection of 2.9 percent. This is lower than the finance ministry’s 2.9 percent outlook and the International Monetary Fund’s 2.8 percent prediction.

The South Korean economy expanded 3.1 percent in 2017 and 2.9 percent in 2016.

Reflecting the myriad of problems he will have to tackle, Hong acknowledged after his nomination was announced that some data on employment and investment remain bleak. He emphasized that he intends to listen to voices of the corporate sector to find out what actions can be taken to infuse vigor into the economy.

“I think my mission is raising our economic growth above the growth potential … and structural reform is another task to be focused on,” he told reporters in Seoul.

The weaker-than-expected economic expansion contrasts with the fact that exports, one of two pillars of the economy, remain bullish. But general economic conditions at home are not so good.

Hong Nam-ki, a nominee for finance minister, listens to remarks by a lawmaker during a parliamentary committee session in Seoul, on Nov. 9, 2018. (Yonhap)

Hong Nam-ki, a nominee for finance minister, listens to remarks by a lawmaker during a parliamentary committee session in Seoul, on Nov. 9, 2018. (Yonhap)

The unemployment rate stood at 3.6 percent in September, up 0.3 percentage point from a year earlier, making it the highest rate for the month since 2005.

The number of employed people reached 27.05 million in September, up a meager 45,000 from the same month in 2017, according to official data. In each of the previous two months, the number of newly added jobs stayed below the 10,000-level, causing alarm bells to go off.

The number of unemployed reached 1.02 million in September, hovering over the 1 million mark for the ninth straight month.

In June, the government cut its job creation target to 180,000 this year from 320,000. But many think tanks predict the real number will be around 100,000 or even lower.

Naturally, observers here said all eyes will be on how the next finance minister addresses such sticky issues, with Moon’s approval ratings continuing to slide in light of the worsening economic situation.

Corporate spending being in a deep trough is also a major concern for Hong.

Facility investment rebounded in September, gaining 2.9 percent on-month, following a 1.6 percent on-month drop in August.

But between March and August, corporate spending took a downward path, raising concerns that Asia’s fourth-largest economy is heading into a slowdown, with private spending also showing signs of a slump.

Recently, the Moon government’s key economic policies have come under fire.

Earlier, the government announced a road map with four key principles — income-led growth, a job-creating economy, a fair economy and innovative growth — while it came up with a tax code revision involving a hike of both income and corporate taxes for well-off individuals and businesses.

Among others, Moon’s iconic income-led growth is drawing much criticism as the wealth gap between the haves and have-nots has not narrowed.

Critics argue, moreover, that the extended slump in the job market is due to a minimum wage hike, which is part of the Moon administration’s broader growth policy.

Despite such flak, many said that Hong’s nomination signals that the incumbent administration’s key policies will be more or less maintained going forward, although there could be some adjustments.

“I put more focus on innovation-led growth policy although I don’t think it is separate from income-led growth,” Hong said. “I will do my utmost to ensure all policy initiatives bear fruit during my term,” he stressed.

According to Hong, the government’s key economic policies, such as expanding the social safety net, can be better implemented with the help of increased fiscal spending.

Against this backdrop, many economists have said that for now, state spending will largely be used to bolster employment and redistribute wealth in a way that reduces the gap between the well-to-do and the underprivileged.

Earlier, the Moon government proposed a 9.7 percent hike in next year’s budget to 470 trillion won (US$422 billion). This would be the fastest increase since 2009, when outlay jumped 10.6 percent in the aftermath of the 2008 global financial crisis.

Next year’s budget spending indicates a greater fiscal role in the economy.