Concerns over Korea’s Economic Reforms

The Asian Development Bank (ADB) on Wednesday greatly lowered Korea’s growth prospects for 2004 and 2005 with concern over the government’s reform policy.

However, the ADB mostly raised its outlook on other major Asian nations’ growth rates.

According to a ADB’s report, “Asian Development Outlook 2004,” released on its web page on the same day, it pointed out, “The focus of recent reforms has been more on socio-economic concerns, such as increasing transparency in the chaebol, improving wealth distribution, upgrading labor conditions, and strengthening the social safety net.”

The ADB revealed, “Despite the long-term benefits of some of these policies, the change in focus has unsettled the business community. The post-financial crisis reforms—once praised by the international financial community for their speed and depth—are increasingly dominated by debates over the distribution of wealth versus economic growth.”

In addition, the ADB suggested that in order to boost investment and to regain business confidence, Korea’s reforms should concentrate on economic efficiency and productivity through greater flexibility in the labor market, a healthier credit culture in the financial sector, and improved governance and transparency in the corporate sector.

The report dropped it’s earlier forecast for Korea’s growth rate for 2004 to 4.4 percent, down from 4.8 percent. It also dropped Korea’s growth rate for 2005 to 3.6 percent, down from 5.2 percent due to Korea’s slow recovery in exports.

Prior to this report, the Goldman Sachs Group, an American investment banking firm, also revised its growth outlook for Korea for 2004 to 4.8 percent, down from 6.0 percent, and for 2005 to 4.4 percent, down from 6.25 percent.

In the same report that showed a lower outlook for Korea’s growth rate for 2004, the ADB raised its outlook on other major Asian countries’ growth rates for this year, including China, Hong Kong, and Taiwan. Korea is included among countries such as India and Thailand that face lowered economic growth.

China’s economy had been expected to grow to 8.3 percent this year. However, the ADB revised that forecast to 8.8 percent with next year’s growth rate lowered to 8.0 percent, down from 8.2 percent. The ADB also raised Taiwan’s growth rate for 2004 to 6.0 percent, up from 5.4 percent, and next year’s growth rate to 4.8 percent, up from 4.7 percent.

Jong sik Kong Sung-Won Joo kong@donga.com swon@donga.com