With Cho Won-dong named chief economic aide to President-elect Park Geun-hye, joining Finance Minister-nominee Hyun Oh-seok in the incoming government, the economic duo, who are described as “two of a kind,” are expected to first tackle issues on rising household debt through growth policies focused on boosting welfare.
Park’s full economic lineup is yet to be established, as top new posts for the Financial Services Commission, the Fair Trade Commission, the National Tax Service and the Korea Customs Service have not yet been filled.
However, as the president-elect mentioned that she would put top priority on downsizing household debt, which is a key part of the effort to improve the economic conditions of low- and middle-income groups for sustainable growth, it is clear that Cho and Hyun will be immediately be in the frontline to deal with Park’s No. 1 concern.
Hyun, who awaits his confirmation hearing, said that he would do all he can to “restore the middle class through growth and welfare,” while Cho said his main task would be “assisting the Cabinet so that it can do its job smoothly” following their appointment.
The household debt situation in Korea is serious.
Moody’s warned that “high household leverage is a systemic concern,” even though Korean banks have sound capital base to buffer possible loan defaults.
Korea’s household debt, including sales on credit and private enterprise borrowing, amounted to some 1.1 quadrillion won in 2011, accounting for nearly 90 percent of its GDP, well above the standard limit of 75 percent recommended by the World Economic Forum, according to the Bank of Korea, International Monetary Fund and Korea Investment & Securities.
Snowballing household debt was also chosen as the most critical risk to the economy in a recent survey on systemic risk by the Bank of Korea, followed by foreign exchange volatility and falling house prices.
The relationship between debt and housing is very close given that a debt increase has mostly been incurred from mortgages, and the housing market slowdown would spell trouble for those borrowers, analysts said.
As Cho draws the “big policy picture” for Park, it would be up to Hyun to implement it with the tax and customs agencies and regulators to secure higher tax income and growth for welfare expansion and economic democratization, political analysts said.
This is why it is equally important to appoint the heads of those state organizations in time to speed up policy coordination and enforcement, they said.
Cho, even though junior to Hyun, outranks Hyun in the administrative hierarchy, and the former would need to “apply the brakes” on the Finance Ministry should Cho sense that the president’s key economic policy is heading in the wrong direction, analysts said.
However, the two are said to be close given that they both came from the former Economic Planning Board, which merged with the Finance Ministry in the 1990s, and are likely to complement each other.
Both experts in macroeconomics with doctorates earned from prestigious universities overseas, the two are expected to deal with foreign exchange volatility, on which Park told a group of corporate executives that the incoming government will pay close attention to ensure stability.
FX, the second-highest systemic risk for Korea, would also be one of key concerns for the Cho-Hyun team as Korea mainly depends on exports for growth.
Even though the state-run Korea Development Institute, where the finance minister-nominee served as the president, issued a paper recommending a key rate cut to stimulate the economy to counter the global slowdown, Hyun had said that it would tougher to tame inflation once it begins to increase.
By Park Hyong-ki (email@example.com