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Finance minister may change Choinomics amid concerns over deflation

Finance minister may change Choinomics amid concerns over deflation

Posted March. 05, 2015 07:21,   


Korea`s Deputy Prime Minister and Finance Minister Choi Kyung-hwan has admitted the possibility of deflation for the first time in his term in office. During his speech in a seminar convened by National Strategy Institute on Wednesday, Finance Minister Choi said, “I am worrying about a possible deflation,” putting emphasis on the domestic demand revival and labor market reform. Even two days ago, an official at the Finance Ministry flatly said, “It is hard to see that the Korean economy has entered deflation yet.” Compared to this, Choi’s saying is a huge change of the recognition.

Expectations were high on the "influential political figure elected as deputy prime minister" in July last year when Choi was inaugurated and pledged to “mobilize all possible policy measures to get out from the trap of low-growth.” In fact, the finance minister tried to stimulate the domestic economy by spending more than 46 trillion won (approx. 41.86 billion U.S. dollars). But the "Choi-nomics" has never produced any fruitful result to increase household income, only to face with concerns over deflation. Nevertheless, Choi expressed his willingness to vie for the general election scheduled in next year, saying, “As a politician, I want to stand for the general election.” It is quite questionable whether the words from "someone to leave" would take effect in the market.

Once deflation starts, whatever policy measures may not work. Therefore it is important to take proactive measures by utilizing all financial and monetary policy means before the deflation becomes a reality. Some part of the domestic economy had already asked for special measures to boost dampened investment and flagging consumer sentiment.

Deputy Prime Minister Choi suggested an economic stimulus plan by increasing the income of employed workers, such as increase of the minimum wage. Choi admitted that the government’s policy measures have produced limited effect and encouraged businesses to raise the minimum wage. Choi said, “Labor, management and government must reach a consensus for labor structural reform in March or April so that it can be legislated in the National Assembly in June.” But if waiting until the Korea Tripartite Commission (of labor, management, and government) makes a great agreement, it is not possible to revive the domestic economy, which is at the verge of deflation. Saenuri Rep. Lee Man-woo, the former chairman of the Korean Economic Review, said in an interview, “If I were Choi, I would have dialogues with the labor sector every day to explain the current economic situation and persuade them.” Has ever Choi shown such commitment and action?

Even though the finance minister is the nation’s top fiscal policymaker, it is frustrating to see Choi is only waiting until the Assembly to settle tough issues. Some of economic stimulus acts such as Service Industry Development Act, Medical Service Act and Tourism Promotion Act have been pending in the Assembly without proper discussion. Vice Deputy Minister Choi was the former floor leader of the ruling party. Despite the fact that former floor leaders of the ruling party are now prime minister and deputy prime minister, the current administration is so incapable that it is not able to exert influence on the National Assembly. Rather than worrying only by words, if necessary, Choi needs to meet with lawmakers one by one and persuade them to make a breakthrough. It is the time for him to produce a groundbreaking measure as an influential political figure who boasted, “I would go the way that is not in a map.”