Measures to Boost Economy Announced

The government officially admitted that the economy was losing steam, signaling a strong sense of crisis about the present and future of the Korean economy.

This is particularly unusual given that the government had been criticized for being too optimistic about the economy.

The government and the ruling Uri Party held a meeting at KDB Capital headquarters in Yeouido, Seoul yesterday to announce “comprehensive measures for business environment improvements” devised by 14 government agencies including the Ministry of Finance and Economy, Ministry of Commerce, Industry and Energy, Ministry of Labor and Ministry of Environment.

“The number of new companies and factories has been declining since 2004, and Korea’s key manufacturing facilities are moving overseas by increasing number every year,” the government stated in the measure.

It added that there had not been sufficient improvements in various regulations in terms of both quantity and quality, citing Korea’s ranking 23rd out of 175 countries in the World Bank’s evaluation of business environment.

“The Korean economy is showing signs of slowdown in terms of business startups, factory construction and foreign investment due to permanent high-cost structure, labor shortage and stronger regulations,” the government evaluated.

To address this problem, the government decided to identify 115 areas to deregulate and make improvements.

Under the new measure, small-and-medium-sized manufactures starting business outside the Seoul metropolitan area with more than 500 million won of facility investment will receive 10 percent of their investment in subsidies within the limit of one billion won for three years from January next year.

In addition, small manufacturers, founded between 2007 and 2009, will be exempt from 12 taxes including tax for farmland preservation and tax for waste treatment for three years after founding.

By the end of this year, the government is going to implement measures to raise the limit of foreigner employment to 50 percent of total new recruits for companies coming back to Korea after operating overseas for more than three years.

Meanwhile, the regulation framework in Seoul metropolitan area will be maintained with selective permission granted to some investment plans.

“Four out of eight companies waiting for permission to invest in Seoul metropolitan area will receive the result of our evaluation as early as next month,” the Finance Minister Kwon O-kyu said.

The business community of Korea generally welcomed the announcement, although it was disappointed to see measures on key issues such as reducing the equity investment limit on conglomerates missing.

“It is encouraging that the government identified problems for businesses to come up with related measures. Nevertheless, it is disappointing that the government did not include measures to abolish the shareholding cap on conglomerates, increase flexibility of the labor market and lower the inheritance tax burden. So we hope to see additional measures from the government on these matters,” the Korea Chamber of Commerce and Industry said in an official commentary.

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