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[Editorial] Candidates Should Present Measures to Boost Investment

[Editorial] Candidates Should Present Measures to Boost Investment

Posted December. 11, 2007 03:48,   


South Korean presidential frontrunner Lee Myung-Bak of the Grand National Party, who is enjoying a solid first place position in the opinion polls for the upcoming presidential election, pledged to achieve an annual economic growth rate of seven percent. Both the ruling UNDP candidate Chung Dong-young and independent candidate Lee Hoi-chang promised six percent. Experts say an eight percent growth rate is necessary to keep their yet-another promise of job creation. The Bank of Korea, however, forecasts next year’s growth rate at 4.7 percent. Without measures that will significantly boost facility investment, their pledges of economic growth and job creation will prove to be invalid from the first year in office.

The increase of domestic investment in plant and equipment stagnated at an annual rate of 0.7 percent during the period from 2000 to 2004, and has edged up slowly from 2005. But the nation`s facility investment growth rate for next year is expected to decrease to 6.4 percent compared to this year’s estimate of 7.6 percent. Investment staged a recovery in the first half of this year, but machinery investment, which accounts for 80 percent of the total facility investment, went into the negative territory in the third quarter. This has raised concerns that the growth engine of the manufacturing industry will further weaken. If the current trend continues, it will be increasingly difficult to avoid the state of underinvestment in which investment fails to keep pace with the size of the economy, pundits said.

According to a survey of 300 manufacturers operating overseas, conducted by the Korean Chamber of Commerce and Industry in September this year, Korea scored 49.3 out of 100 for a friendly investment environment. The figure is 19.6 points lower than that of the country (68.9) in which the manufacturers are based. Without overcoming the gap, it’s impossible to expect brisk domestic investment.

The business sector expressed concerns that an independent investigation into slush fund allegations involving Samsung Group will hamper large companies’ investment in facilities. This year, Samsung poured 22.6 trillion won into the investment, a figure that makes up 28 percent of the total investment of 80 trillion won made by the nation’s 600 largest companies. Some say these concerns are exaggerated. However, if Samsung’s management disruption leads to a decrease in investment, it will deal a huge blow to the economy.

The Bank of Korea and the Korean Chamber of Commerce and Industry both emphasize that bold and continuous deregulation measures and improvement in the labor environment are needed to increase facility investment. That is the solution that even the public is aware of. Presidential candidates are advised to come up with practical pledges that will bring about a favorable business environment rather than waste taxpayers’ money to curry favor with voters.