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Korea needs sweeping economic reforms

South Korea should carry out a sweeping reform of its economy to tide over a series of crises facing Asia's fourth-largest economy, a leading economist said Thursday.

Kim Joon-kyung, president of the state-run Korea Development Institute, claimed South Korea is facing such challenges as falling growth potential, still high levels of regulation, plunging corporate earnings, a gaping income gap and a lack of preparedness for the so-called fourth industrial revolution.

This file photo shows Kim Joon-kyung, president of the state-run Korea Development Institute, speaking during a local forum. (Yonhap)
This file photo shows Kim Joon-kyung, president of the state-run Korea Development Institute, speaking during a local forum. (Yonhap)

"South Korea needs to conduct across-the-board reforms of regulation, education and labor to cope actively with a change in demand for labor stemming from the new industrial revolution and intensifying competition among companies and countries," Kim said in a lecture marking the 20th anniversary of the KDI School of Public Policy and Management.

With its high-growth era ending in the 1980s, South Korea's growth potential is expected to hit 2.8 percent for 2016-2020, 2.5 percent for 2021-2025 and 1.9 percent for 2026-2030, he said.

The South Korean economy grew 2.7 percent on-year in 2016, but is widely expected to lose steam due to unfavorable factors both at home and abroad.

Kim said companies that can't even pay interest on loans with operating profit for three years in a row account for nearly 15 percent of all firms in South Korea, with high levels of regulation crimping corporate investment.

Since the 1990s, South Korea's income distribution has been worsening, making the generational gap wider and undercutting social unity.

Against such a backdrop, South Korea has failed to brace for the emergence of the fourth industrial revolution, in which the United States and other advanced economies are taking the initiative, the KDI chief said.

"South Korea will become a positive-sum society should it succeed in its structural reform of the economy, which could foster economic actors' will and create a virtuous cycle of economic growth," he said.

Kim's call mirrors assessments by international agencies. The International Monetary Fund has estimated South Korea's growth potential will rise 1.25 percentage points over the next decade if it pushes for a comprehensive structural overhaul of its economy. (Yonhap)

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