The Park Geun-hye government has recently received a report card on its economic policy over the past two years. Since the Park Geun-hye government emerged a few months after the Japanese government changed hands in 2012 and since both governments unveiled their economic policies (dubbed as ‘Geunhyenomics’ and ‘Abenomics’, respectively) over the same period, many have been tempted to draw a comparison between Geunhyenomics and Abenomics.
Geunhyenomics is the Park Geun-hye government’s economic policy, centered on hoisting the S. Korean economy out of the low-growth doldrums. The Park government has pressed ahead with deregulation and a restructuring of state-owned enterprises according to its 3-year economic innovation plan, whereas the Shinzo Abe government promised to halve the primary deficit by fiscal 2020. Abenomics was drawn up by the Shinzo Abe government in 2012 to resuscitate the Japanese economy, mired in a prolonged slump known as Japan’s two lost decades.
Geunhyenomics vs. Abenomics
When it comes to foreign media coverage of President Park’s economic policy, Geunhyenomics was projected in a positive light, compared to Abenomics. Geunhyenomics scored better than Abenomics in practicability. “Her ‘474 vision’ is more plausible than many pundits, business people and even her own policymakers seem to think. It’s also promising that Park is focusing on the long run, not short-term Band Aids, such as easy money or massive stimulus, as its neighboring countries have done,” wrote William Pesek, a Bloomberg View columnist, in his column titled “South Korea’s Wildly Plausible Growth Plan.” The Wall Street Journal also quoted an economist as saying, “S. Korea’s 3-year economic growth plan is more feasible than its neighbors’ and the Park government’s political will is stronger now than before.”
Though both Geunhyenomics and Abenomics aim for economic revitalization, they have taken different approaches: Geunhyenomics put a high premium on deregulation while Abenomics focused on economic stimulus packages.
The Japanese economy has exhibited signs of breaking away from deflation over the past two years while the S. Korean economy is facing deflationary risks. As the centerpiece of Abenomics is a limitless quantitative easing, Japan’s benchmark interest rate has held at an ultra-low 0.1%, much lower than South Korea’s 2.5%, which has been left unchanged since it was set last year.
The difference in the two nations’ interest rates was mirrored in the value of their currencies. As of 2014, the yen slumped 18.6% against the US dollar while the Korean won climbed 5.6% against the greenback. A weak yen and a strong won had a huge impact on exporters in both nations. The yen’s continued depreciation made Japanese products cheaper in overseas market, thereby ratcheting up the nation’s exports. Despite the won’s appreciation, however, S. Korea’s export industry has maintained its growth momentum. After posting a 2.1% growth in 2013, S. Korea’ exports continued to grow in 2014 (except for January and May). Yet, the strong won hurt Korean exporter’s profitability since they have to convert their dollar-denominated overseas earnings into won.
As for consumer prices, both nations have maintained low rates of inflation. While Japan allowed inflation to mount in order to break free from deflation, growth in S. Korea’s consumer prices slipped to 1.3% in 2013 and hovered around 1% in 2014 after hitting 2.2% in 2012.
As for GDP, Japan’s GDP rose 1.5% in 2013 and 1.6% in the first quarter of this year. On the other hand, S. Korea’ GDP edged up a mere 0.9% in the first quarter of this year. Judging from GDP growth, Abenomics’ easy money policy hit the mark among its three strategic tools: quantitative easing, fiscal policy and growth strategies.
Remaining tight-lipped about sensitive economic issues
Though Geunhyenomics was viewed as highly feasible, it flunked the task of restoring consumer confidence. First of all, the goals of the government’s policies are divergent. And while Japanese Prime Minister Shinzo Abe squarely tackled with hot-button issues, such as consumption tax hikes, corporate tax cuts and interest rate cuts, President Park and the Finance Minister have taken a low-key approach towards sensitive economic issues.
During a confirmation hearing, held last week in Seoul, Finance Minister nominee Choi Kyung-hwan stopped short of offering clear-cut answers to lawmakers’ questions regarding ways to increase tax revenues for the implementation of expansionary fiscal policy and corporate tax reductions. Though the government has put forth its policy for economic democratization, how and to what extent the economic democratization policy will be implemented is pretty much unclear. Hence the public and Korean companies feel insecure about their future.
Election-conscious politics vs. Market-first politics
While Geunhyenomics was swayed by election-conscious politics rather than market demands, Abenomics put market demands before everything else. Prime Minister Shinzo Abe resolutely went ahead with reforms, which his predecessors shunned in fear of upsetting voters. What’s more, fully embracing market demands for turning around Japanese businesses first for the sake of Japan’s economic recovery, the Shinzo Abe government has carried out its policy in a coherent manner, thereby producing positive results.
The S. Korean government also lacked consistency in policy implementation. The announcement of tax reforms and property market measures was followed shortly by the release of their revised versions. The government went public with its rental housing market normalization policy in February. It was revised a week later and again three months later. Critics say that the problem is that the government hurriedly drew up policies without in-depth probes into the problems faced by the S. Korean economy or national consensus.
Setting easy-to-understand goals helps boost presidential approval ratings.
The policy goals of Abenomics – an inflation target of 2% in 2 years and a real economic growth of 2% by 2020 – got across to the public effectively and easily as it was widely dubbed the "2-2-2-2” policy, which is pretty much catchy. The Shinzo Abe government fundamentally believed that winning public support and recognition was all important. “The goals of Abenomics are more of communication with the public than feasible numerical targets,” said the Ministry of Finance of Japan. The Shinzo Abe government’s efforts to clearly inform the public of its policy goals resulted in drawing social consensus and public support.
On the contrary, Geunhyenomics took a scattershot approach, eventually hampering inter-ministerial cooperation in policy implementation. Each government ministry has been parroting a series of abstract, ambiguous concepts, such as normalization of abnormality, deregulation, and public happiness. In a situation where inter-ministerial coordination is absent, the row over the low-carbon vehicle cooperation fund between the Ministry of Trade, Industry and Energy Republic of S. Korea and the Ministry of Environment comes as no surprise.
At a crossroads between advance and retreat, S. Korea needs strong leadership at the top.
After winning market confidence in his government, Prime Minister Shinzo Abe headed for the field, projecting himself as a man of action. He presided over all the government committee meetings and discussions, related to economic policies, and he sat down with leading figures in Japan’s business circles in order to talk them into wage hikes, the key to Abenomics’ success. When his policies hit a snag or new messages needed to be conveyed to the public, he unhesitatingly came forward to communicate them to the public by himself. Prime Minister Shinzo Abe’s aggressive moves also inspired Japanese ministers into going the extra mile. As a result, no cabinet reshuffle has occurred since Shinzo Abe took office, thus ensuring continuity of policy implementation and strong power of execution.
What S. Korea badly needs now to breathe new life into the embattled S. Korean economy is political change. Political strife and politicking has left the National Assembly of S. Korea extremely unproductive, resultantly hamstringing its legislative functions. Thus, the nation’s political circles have to put their differences aside and both the ruling and opposition parties have to jump at government reform and economic innovation. To do so, President Park’s strong leadership is a must. Addressing conflicts of interest and finding middle ground in political feuds is what President Park has to do now.
