SEOUL Aug 4 Three frenetic weeks into the job,
South Korea's new finance minister Choi Kyung-hwan has made such
a splash that his name already describes Seoul's plans to rev-up
But while "Choinomics" is proving an effective quick fix,
lifting markets and giving an unpopular government a boost, it
falls short thus far of a full-fledged manifesto similar to the
"Abenomics" launched by Japanese Prime Minister Shinzo Abe in
late 2012 to shake his country from its economic torpor.
Economists say bolder measures to reform structural
weaknesses are needed to head-off what Choi warns is a serious
threat that Asia's fourth-largest economy could slide into
The veteran lawmaker's plan combines extra spending with an
easing of mortgage curbs to boost the property market, a
proposal to tax excess corporate cash reserves, and
not-so-subtle pressure on the central bank to ease interest
It has already helped dispel some of the gloom hanging over
the economy since the April 16 sinking of the Sewol ferry that
killed more than 300 people.
Since Choi's appointment, the benchmark stock index
has risen 4 percent in anticipation of higher dividends, while
bond prices are also up, reflecting rate cut bets. Some
economists are also revising up their growth forecasts.
"He's certainly made a splash since he came into office,"
said Frederic Neumann, co-head of Asian economic research at
HSBC in Hong Kong.
That is a relief for President Park Geun-hye, who brought in
the 59-year-old close ally and ruling party floor leader in a
cabinet reshuffle after the ferry tragedy.
Still missing, though, are long-term solutions to South
Korea's problems: over reliance on manufacturing and exports at
the expense of consumption and services, a rapidly ageing
population, inefficiencies in the labour and housing markets,
high household debt, and the often-stifling dominance of giant
conglomerates such as Hyundai, Samsung or LG, known as chaebol.
Park in February spoke of plans to rebalance the economy,
but like many before has made little headway with follow-up.
Choi's tax plan, due to be detailed on Aug. 6, is the most
ambitious part of his package. It aims to boost investment,
wages and dividend payouts in order to stimulate consumption.
In theory, it would go some way towards promised
rebalancing. The question is whether it can work.
Park Ju-gun, co-president of corporate watchdog CEO Score,
said he doubted taxing reserves will force businesses to spend
more: "There are many ways they can avoid doing this."
Some economists also point out that Choi's $40 billion
stimulus, equivalent to 3 percent of the economy, is less than
meets the eye. Only about $11 billion of that represented by
fiscal spending and much of the rest in the form of financial
support from the central bank and state banks that may have
limited impact on growth.
ANZ Banking Group, however, considered the stimulus boost
and expected monetary easing sufficient to raise its 2014 South
Korea growth forecast to 3.6 percent from 3.4 percent and next
year's to 3.7 percent from 3.4 percent.
MORE TO COME?
Choi - nicknamed "the Bull" for his hard-charging style - is
promising more, including an expansionary budget next year and
Further potential steps include relaxing construction
regulations, incentives for companies to hire part-time workers,
and encouraging investment in services and smaller enterprises.
Some commentators credit "Choinomics" for the ruling party's
strong showing in last week's by-elections, where it won 11 of
15 contested seats, strengthening its majority and making it
easier for Choi and Park to push further reforms.
"The opposition will be more receptive to the government's
push to boost domestic demand," said JPMorgan economist Lim
However, Choi is unlikely to pursue policies that would
inflict much pain on chaebol, which power South Korea's exports
and back Park's conservative Saenuri Party.
Choi has already sought to manage expectations.
"Regulatory reform cannot solve everything in a day and
there are limits, but we will strive to have money flowing into
the markets from investment and reform," he told parliament soon
after taking office.
Critics also say Choi's steps to boost the property market
risk undermining efforts to rein in high consumer debt for the
sake of a short-term boost that may not even materialise.
"Stocks will rise even at the thought of dividends, even if
they do not materialise. But the real estate market is depressed
and will be difficult to engage," said Oh Suk-tae, economist at
Societe Generale in Seoul.
(Editing by Tomasz Janowski)