Economic Growth Rate Hovering around Four Percent while National Debt has Doubled

“In 2006, Korea achieved one of the highest economic growth rates among OECD member countries, and its annual trading volume reached $300 billion while KOSPI set a new record.”

In a recent briefing, the presidential office praised such statistics as economic success achieved since the current government was launched four years ago. However, the presidential office hardly mentioned its real estate policy, considered a failure by most Korean people, or the significantly weakened growth potential of Korea and lack of job creation.

Repeated Failure to Achieve its Target Growth Rate-

“In 2003, as national growth was bolstered, Korea’s economy was expected to grow by about five percent.” This is the prediction made by the Ministry of Finance and Economy in its report titled “The 2003 direction for economic management” released in early 2003, the first year of the current government. However, the actual growth rate recorded in 2003 was much lower at 3.1 percent, which is about four percent lower than President Roh Moo-hyun’s campaign promise of maintaining a seven percent economic growth rate during his presidency.

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In 2004, the government also predicted a growth rate of more than five percent, but its actual economic performance remained at 4.7 percent. In 2005, it was much the same as the government prediction was five percent while the nation actually recorded a 4.0 percent growth rate.

After all, the only time that the incumbent government successfully achieved its goal of a five percent growth rate was last year, where the growth rate is currently presumed to be five percent. In fact, the government has lowered the nation’s economic growth forecast for this year, the final year for the current government, to 4.5 percent.

The average growth rate during the past four years of the current government is 4.2 percent. To this figure, the presidential office maintained that when seven advanced countries (G7) had similar per capita income with Korea’s current per capita income of $15,000, their growth rate stood at 3.2 percent.

However, many experts think that if it were not for policy failure, Korea’s economy could have grown more than five percent annually just as the government predicted.

In particular, in the most recent four years, the world economy has practically enjoyed an unprecedented economic boom. However, during those years, Korea’s economic growth never surpassed the world average. Given the economic scale of Korea, whose GDP stood at 806 trillion won as of 2005, a one-percent-point lower economic growth rate means that about 8 trillion won in national wealth is being lost annually.

Weakened Growth Potential is Worrisome-

President Roh said in his New Year’s national address at the end of January, “The next government will never be passed on any side effects.” However, a low increase in facility investments that has continued during the current government has already weakened Korea’s growth foundation for the medium and long term. In fact, many point out that the biggest fiasco of the current government economic policy is actually the plummeting growth engine for long-term growth rather than the obvious economic index.

Increase in facility investments in Korea had remained higher than the economic growth rate in the 1990s, driving up the nation’s economy. However, since the launch of the current government, the actual increase in facility investments remained at the annual average of 3.8 percent with a negative 1.2 percent in 2003, 3.8 percent in 2004, 5.1 percent in 2005 and 7.5 percent in 2006.

Large corporations stayed away from investing even when they had vast amounts of cash in their hands. The situation could have been different if the government had created favorable environment for investment by lifting up various regulations that hamper corporate activities, such as the ceiling on the total amount of equity investment in other domestic companies or limit on the development of metropolitan areas.

Bae Sang-geun, a researcher of the Korea Economic Research Institute, said, “Although the government has released measures on many occasions to encourage investment and to ease regulations, most of them were focused on small and medium-sized companies and non-metropolitan areas. As a result, the government has failed to draw investment from large corporations, which have the real financial capability for investment.”

The rapid increase in national debt also places a burden on the economy in the long term, and the burden will eventually be passed on to future generations of Korea. According to the Ministry of Finance and Economy, the national debt of Korea was 283.5 trillion won as of last year’s end, a 149.9 trillion won increase from 133.6 trillion won at the end of 2002, just before the launch of the current government.

Income Gap between Different Groups Not Closing while Incomes Remain Stagnant-

The economy felt by average Koreans is even worse. This is because the increase in national income failed to even catch up with the low growth rate.

The actual Gross National Income (GNI) stood at an average of 2.1 percent during the past three years with 1.9 percent in 2003, 3.8 percent in 2004 and 0.5 percent in 2005. In particular, the 0.5 percent increase in 2005 is in fact almost no increase at all. Last year was not different with a 1.9 percent increase by the third quarter.

Even without an appropriate increase in income, the government was enthusiastic about raising taxes. The government tax revenue was 147.8 trillion won in 2003, 152 trillion won in 2004, 163.1 trillion won in 2005 and 172.6 trillion won in 2006.

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Moreover, the income gap is not closing at all.

One of the core indexes to assess income distribution, Gini`s coefficient (based on households across the country), has risen year after year from 0.341 in 2003 to 0.351 in 2006. A higher figure indicates a more severe inequality in income.

Job insecurity is also heightening.

In 2004, the government said, “From now on, a total of two million jobs will be created over the next five years with 400,000 new jobs every year.

The following year of 2005, however, saw the goal of job creation failing. Only 299,000 jobs were created. In 2006, even though the government adjusted its goal to an achievable level of 350,000 to 400,000, the goal was not realized as only 295,000 jobs were made.

As finding a job is getting harder, the number of unemployed university graduates is increasing as well. Due to the increased job insecurity, an abnormally high number of job seekers are favoring jobs of the public sector such as public servants and public school teachers rather than seeking jobs in private corporations, which should guide the nation’s future economy. This abnormal proclivity for public sector jobs has also started to be distinctive in the current government.