New South Korean president has little to cheer

Moon Jae-in was inaugurated as South Korea’s 19th president on 10 May. While his victory ends months of political uncertainty in Seoul, there is little cause for celebration. Several domestic and international crises, including an elevated risk of conflict in the Korean peninsula, will dominate his agenda.


On 9 May, Moon, from the liberal Minjoo Party of Korea (also known as the Democratic Party of Korea), won 41 per cent of the votes. The runner-up was Hong Jun-pyo from the centre-right Liberty Korea Party with 24 per cent, followed by Ahn Cheol-soo from the centre-left People’s Party, with 21 per cent. The presidential election, originally scheduled for January 2018, was brought forward after the constitutional court confirmed the impeachment of former president Park Geun-hye on 10 March on corruption charges. Her conservative Saenuri Party re-branded itself as the Liberty Korea Party to distance itself from the corruption scandal, while several members left to form the centre-right Bareun Party.

While Moon won by a large margin, the 13.42 million votes he garnered was by no means a landslide; in the last election Park won 48 per cent, or 14.69 million, of votes cast. The results showed that the electorate was evenly split in their support for liberal-leaning (Minjoo and People’s) and conservative-leaning (Liberty Korea and Bareun) parties, with each winning about 40 per cent of the vote. Furthermore, the electorate also voted along demographic lines, with the older generation (above 50 years old) supporting the conservatives while the younger population rallied behind the liberals. These divisions signal that Moon could face strong domestic challenges not only from voters but also from sections of the political and business elite.

Moon could face strong domestic challenges not only from voters but also from sections of the political and business elite

One arena where he will certainly face an uphill battle is in the National Assembly, the country’s legislative body. Moon’s Democratic Party currently holds 120, or 40 per cent, of the 300 seats, which means it lacks an overall majority. The People’s Party, the third largest parliamentary bloc, has ruled out forming a coalition with Moon because its members had defected from the Democratic Party in 2016 over ideological differences. Meanwhile, the two main conservative parties, Liberty Korea and Bareun, hold a total of 126 seats.

The previous administration, despite its parliamentary majority, was unable to introduce key labour reform bills due the requirement that the introduction of a bill requires the approval of three-fifths of lawmakers before they are willing to put it to a vote. Given that the next National Assembly election will be in 2020, and that the president has no power to call for an early poll, the present legislative balance will remain and almost certainly ensure prolonged parliamentary gridlock for the next few years.

ASSESSMENT

Economy

Foreign investors should expect the Moon administration to pursue expansionary fiscal policies to revitalise the economy, which has slowed down in recent years. South Korea currently faces several key economic and related social issues, notably record household debt levels and high unemployment rates, particularly among the young. In April 2017, the overall jobless rate reached a 17-year high at 4.2 per cent, rising to 11.2 per cent among the 15-29 age group, or a 10.9 per cent year-on-year increase.

Moon, in what is set to be an even greater challenge, has also committed to reforming the chaebols, South Korea’s powerful family-run conglomerates

In a bid to resolve these issues Moon has pledged to introduce a KRW10 trillion (USD8.8 billion) supplementary budget focusing on job creation based on creating 800,000 new jobs in the public sector, specifically in the civil service, police force and civil defence. However, the two main opposition parties, Liberty Korea (formerly the Saenuri Party) and the People’s Party, claim that such a programme cannot be sustained under the current tax system. Further, the country’s national fiscal law stipulates that a supplementary budget is only permitted in times of war, as the result of a major natural disaster or an economic crisis. Since South Korea is currently not facing any such emergency, Moon’s proposal is unlikely to meet the legal criteria required to introduce a supplementary budget.

Moon, in what is set to be an even greater challenge, has also committed to reforming the chaebols, South Korea’s powerful family-run conglomerates. The four largest chaebols are Samsung Group, LG Group, Hyundai Motor Co. and S.K. Group; Samsung alone accounted for a fifth of the country’s GDP in 2016. These companies, which have been instrumental in driving economic growth in the post-war era, dominate almost all economic sectors while stifling the evolution of small- and medium-enterprises (SMEs)…

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