Securing the future

The upcoming presidential elections in December have put public focus on the economy in South Korea. The fourth-largest economy in Asia faces increasing fiscal uncertainty at home and abroad and a growing demand for social welfare in a fast-ageing society, according to its finance ministry.

South Korea is faced with “rising fiscal threats” such as increasing economic uncertainty at home and abroad and a growing demand for social welfare in one of the world’s fastest aging societies, according to the ministry, reported AFP. “Reviving the economy... was the first priority, followed by balanced budget, job creation and social welfare respectively,” Vice Finance Minister Kim Dong-Yeon said about the move. “The budget draft aims to improve fiscal health as the South Korean economy is very much vulnerable to changes in global economic conditions,” he added.

Kim called the 0.3 per cent fiscal deficit forecast for 2013 “an excellent compromise” between the need to provide stimulus spending and fiscal balance. The aim is to balance the budget in 2014 instead of next year.

The budget is based on predictions of 4 per cent economic growth in 2013, below the government’s own estimate of 4.3 per cent in June but in line with the International Monetary Funds forecast of 3.9 per cent, a prediction based on projected lowered exports to the Eurozone.

“Growth is projected to bottom out during the course of 2012, regaining momentum towards the end of the year, in line with the global recovery,” the International Monetary Fund (IMF) said in a recent report.

Although technology major Samsung is leading the growth in many technology categories, Europe’s debt crisis is capping South Korea’s exports, which fell 6.2 per cent in August from a year earlier and the nation’s economy expanded 2.3 per cent in the second quarter, the slowest pace since 2009, according to official data.

The economy is expected to be the key plank for the December election. Three main candidates are in the fray. Software mogul Ahn Cheol Soo, founder of AhnLab Inc, the nation’s biggest antivirus software maker, recently announced plans to contest the elections as an independent candidate, challenging ruling party candidate Park Geun Hye, the daughter of former leader Park Chung Hee, who aims to be the country’s first female president, and the main opposition’s Moon Jae-in. Incumbency fatigue is so strong that Cheol Soo, 50, is already second in opinion polls behind Geun Hye as voters look for new solutions to combat growing income disparity and rising youth unemployment.

The two opposition candidates must now either fight it out to represent the “unified opposition” in a two-way race, or risk splitting the vote to Geun Hye’s benefit in December.

South Korea’s policy towards its estranged sibling, communist North Korea, will be another election issue. The two nations are still technically at war despite their truce in 1953. Opposition candidate Jae-in, a former human rights lawyer, has said he would engage with North Korea following years of tension under the current government, a move favoured by Cheol Soo as well.

With per capita income standing at $30,000 (Dh110,166) — compared to the EU average of $33,000 — Korea has in recent times undergone an economic transformation hailed as “the miracle on the Han river”. It’s among the few developed countries to avoid a recession after the global financial crisis of 2007, just like it sidestepped the Asian crisis a decade earlier.

So far, the country is on track to avoid a crisis. Three ratings agencies upgraded South Korea’s long-term foreign-currency rating in three weeks this summer. S&P raised its rating to A+, the fifth-highest level in September after Fitch marked the nation AA- and Moody’s raised its rating to Aa3 in late August. All cited South Korea’s relatively strong position to cope with global financial turbulence.

Last month’s budget is part of a broader bid to keep growth on track. Other measures to boost economic growth include plans to spend 78 trillion won to support small- and mid-sized firms and 300 trillion won on loans and insurances for exporters. Infrastructure spending will also be increased, while a record 97.1 trillion won has been earmarked for welfare spending, particularly on creating jobs and child care support. On September 10, the government announced economic support measures worth $5.2 billion, including spending and tax benefits, in an attempt to stimulate domestic demand and investment.

— With inputs from agencies