[Editorial] Korea’s Lost Year

Korea recorded 3.1 percent in real Gross Domestic Product (GDP) last year, which is the lowest since 1998, and about half of the seven percent it marked in 2002. Gross National Income (GNI), which indicates real purchasing power, grew by only 1.8 percent. Per capita nominal National Income (NI) increased 10 percent to $12,646. Nominal NI returned to the level prior to the Korean financial crisis, but the increase is largely due to the change in the statistical standard and the fall in the won-dollar exchange rate.

The Korean economy is growing slowly, and the gap between exports and domestic consumption, the two main growth engines, is widening. Exports contributed to 98.2 percent of growth while domestic consumption contributed a mere 1.8 percent. It is a sharp contrast to 2002 when exports and domestic consumption accounted for 43 and 57 percent of growth respectively. Private spending and corporate facility investments decreased 1.4 and 1.5 percent respectively, which may compromise future growth potential.

The number of credit delinquents is approaching four million, and the heads of 2.5 million households are jobless. It is hard to expect a balanced growth of exports and domestic consumption without dramatically improving the current situation. “Korea’s lost year” could prolong if anti-corporate sentiment, downward standardization, and group selfishness are not changed.

The government and political circle should stop pork barrel spending. They should create business friendly environment by reforming laws and institutions that have stifled entrepreneurship and creativity. If nothing is changed, Korea will fall behind its competitors like China forever. Korea’s lost year is equivalent to 10 years down the road.