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(News Focus) Economic policies face inevitable changes following opposition victory

All News 14:30 April 14, 2016

By Byun Duk-kun

SEOUL, April 14 (Yonhap) -- South Korea's economic policies will face inevitable changes with some also expecting an entire change of course for Asia's fourth-largest economy following this week's parliamentary elections where the opposition bloc, though not yet united, grabbed hold of an overwhelming majority of seats.

In the Assembly elections held Wednesday, the main opposition Minjoo Party secured 123 out of 300 parliamentary seats, while the splinter People's Party grabbed 38 seats, both outperforming their own expectations.

The ruling Saenuri Party won 122 seats, a great setback from the 146 seats it presently holds in what is currently a 292-member parliament.

With the two opposition parties alone taking control of a majority 161 votes in the 300-member Assembly, many believe the government will have no choice but to revise many, if not all, of its economic policies that have been often rejected by the opposition side as the very evil that has created many of the problems facing the country.

The first of many government policies that may face a change of course is a move to revise the law governing the service industry, which largely seeks to offer various support, including tax incentives and deregulation, in an attempt to boost consumer spending.

Vice Finance Minister Choi Sang-mok continued to express hope the government-proposed revision to the law on the service industry will pass through the ruling-party dominated parliament before the new parliament is formed late next month.

"I hope the business circle's desperate appeal that all bills aimed at reviving the economy will be legislated under the incumbent National Assembly will be realized," he said in a meeting with ranking government officials and top representatives from business organizations held earlier in the day.

The ruling Saenuri Party may be forced to abandon at least some of its election pledges, which included what has come to be known as a Korean-style quantitative easing.

The ruling party had promised to revise related laws to require the Bank of Korea to take over some of the liabilities from policy lenders, such as the Korea Development Bank, which in turn will allow those state-run banks to lend more and thus help boost investment and spending.

In a released statement, the Korea Employers Federation urged bipartisan efforts to bolster growth.

"We hope the rival parties will join their forces under the new National Assembly to help revitalize the economy and create jobs through productive legislative activities," it said.

Still, the main opposition party appears to have little interest in sharing its new found power with its longtime rival.

Kim Chong-in, interim chairman of the main opposition party, boldly declared the outcome of the latest general elections was rather a punishment handed down to the ruling faction for its misrule.

"Looking at the outcome of the elections in the capital area alone clearly demonstrates that the people have passed judgment on how seriously wrong the Saenuri government was in its economic policies," Kim said, apparently implying that his party will do things differently.

"In the lead up to next year's presidential election, the party will do its utmost to help overcome the difficulties currently facing the economy while spearheading efforts to promote democratization of the economy and economic growth that benefits all," he added.

The main opposition party's pledge to walk a different path to economic recovery and growth has been more clearly stated in its economic platform, in which the party promised to spend an astonishing 148 trillion won (US$128.5 billion) over a five-year period starting from 2017, which it says will help spur consumer spending in turn.

A large part of the money will go to anyone and everyone aged 65 years or above, who will each receive a monthly allowance of 300,000 won. Currently, only about 70 percent of those in the age bracket receive a monthly allowance of between 100,000 won and 200,000 won.

Many, however, say the new opposition majority needs to rather focus on fundamentals.

"Having a long-term perspective is more important than anything else. And this basically requires improving our productivity. We must innovate our technologies and the way we do things," said Bahk Jae-wan, a former finance minister and a lawmaker.

He agreed what the government is currently doing alone may not be enough to save what many believe to be a sinking ship.

"Realizing such innovations is what restructuring means. And this means there is a lot more to do than what the government is after," he said.

Others note the government and the parliament together have more urgent issues at hand.

"Monetary and financial policies are clearly needed. Quantitative easing may spark various debates as to how it must be carried out, but I do believe it is needed to keep the country in the right direction," said Yun Chang-hyun, economics professor at the University of Seoul.

"They need to find necessary funds for restructuring and take stimulus measures to ensure growth," he added.

Still, many cautioned too much, too soon may backfire.

"Short-term stimulus measures may find their usefulness, considering the degree of the ongoing economic slump. But short-term measures may very well stop at being just that: temporary measures," said Lee Geun-tae, a senior researcher from the LG Economic Research Institute.

Professor Kim Jung-sik from Seoul's Yonsei University said a change in the government's economic policy was inevitable, not only because of the outcome of the parliamentary elections but also because of the presidential election slated for late next year.

"The government will likely realign its (economic) policies for the presidential election, and in that sense, quantitative easing or a rate cut is a very likely scenario," the economics professor said.

"Such measures may be desirable in a sense that they may prevent a hard landing of the economy. However, too much will be the exact opposite of desirable in that it may lead to a number of side effects, such as a bubble in the real estate market," he said.


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