How to Boost Korea’s Growth Potential

“In order for Korea to strengthen its growth potential, it needs to lift regulations and open up its market through negotiations like a free trade agreement (FTA),” Hyun Jung-taik, president of the Korea Development Institute (KDI), said on Tuesday.

“Korea’s growth potential was very strong in the 1980s, but started to decrease in the 2000s after experiencing a financial crisis in the 1990s,” Hyun said in his report published Tuesday. The report is titled, “Understanding Economic Policies and Policy Implications on Recent Economic Conditions.”

“In order to slow down the downside phase of economic growth potential or to increase the potential, Korea has to lift corporate regulations, seek open-market policies like FTA, produce skilled labor, strengthen competitiveness in the service industry and improve labor relations,” Hyun pointed out.

However, Hyun said Korea does not need to change its macro-economic policies such as fiscal and monetary policies to overcome its sluggish economy.

“Although the economy is bad in general, it is not yet serious enough to change macro-economic policies like fiscal and monetary policies. If interest rates are raised on fears of excess money, pressure on the appreciation of the won will likely follow. Therefore, a sufficient analysis on the ripple effect must be done before implementing short-term macroeconomic policies,” he added.

sanjuck@donga.com