President Lee Eyes Economic Recovery through 'Korean New Deal'

Devotes his energies to cope with the sagging economy

President Lee Myung-bak is now poised to employ a series of measures designed to revitalize the sagging national economy. Given his campaign pledge to focus on reviving the economy, Lee seems to have no choice but to bet all stakes toward that end to cope with the lingering economic crisis.
His government plans to create some 100,000 jobs next year with an economic growth target of 3 percent, down 1 percentage point from an earlier estimate.
It is seeking to record some $10 billion in current account surplus while curbing the inflation rate at 3 percent or less.
Regarding the means of revitalizing the national economy, the government has decided to spend 14 trillion won ($10.4 billion) to strengthen the capability of four main river systems across the country to cope with floods and drought.
The Ministry of Land, Transport and Maritime Affairs said initial work could begin in the second half of 2009, with the entire work on the Han, Nakdong, Geum and Yeongsan rivers to be completed by late 2011.
This is part of the government's 100 trillion won (about $73.2 billion) investment project to develop the provinces. The measure aims at helping stimulate the economy on top of gaining support from locals who may have felt marginalized by President Lee's Seoul-oriented policies.
The new administration's deregulation of the metropolitan area, which allowed the building of more factories and, thus, the luring of businesses to concentrate there, has been met with opposition from provincial governments.
The government announced the provincial development plans at the Presidential Committee on Balanced National Development meeting, which included revitalizing local economies, redeveloping the rivers and enhancing the quality of life for locals.
For protection against floods or droughts, 14 trillion won will be invested in the four major rivers.
Dubbed the "Korean-style Green New Deal" project, it includes bolstering riverbanks, dredging riverbeds and building small dams to control flooding. The government plans to encourage local construction firms to participate in the project.
However, opposition is growing as it is seen as preparatory work for an inland canal project. Building an inland canal was one of the President's pledges, but many people have opposed the plan due to environmental and budgetary problems. They have criticized Lee, saying that the former construction company CEO is resorting to an easy way of boosting the economy through public infrastructure projects at a time when other nations are focusing on developing technologies.
The government plans to invest 13 trillion won to revitalize the local economy. "While 22,000 firms moved overseas, only 1,500 moved to the provinces. A business-friendly environment should be established in the provinces," President Lee said.
Businesses moving to the provinces will get tax cuts for 10 years, three years more than now, as well as getting double the government's relocations subsidies. Businesses or developers in provinces lagging behind others will get an additional tax cut for five years.
It also plans to locate good schools in major cities of provinces. The poor quality of schools has been one of the factors pushing parents to leave their hometowns and move to the metropolitan area.
The government is considering introducing provincial income and consumption taxes to help the budgets of provincial governments.
Currently, the central government collects taxes and allocates it to local governments. When these taxes are introduced, the provincial government will be levying taxes on income or goods and services in their province. This is to make up for the weakening of the provincial governments' financial stability following the tax cuts.
The Ministry of Strategy and Finance said it would prepare measures next year after public hearings.
The government plans to allocate 15 trillion won to enhance the quality of life of provincial residents, focusing on enhancing housing conditions, medical and welfare services, and environmental services.
The government plans to earmark 3.3 trillion won to support cultural activities and facilities in provinces as well as developing tourism programs.

Korean-style new deal policy
The conservative Grand National Party made rare favorable comments on the policy directions of liberal U.S. Democrats.
GNP floor leader Hong Joon-pyo, touching on President-elect Barack Obama's "1st-Century New Deal" plan featuring large public works construction programs, said, "Now that the U.S. Democrats are about to bolster the economy by investing in social infrastructure, the opposition Democratic Party will hardly be able to oppose our government's similar program." Hong will be doubly pleased to hear Obama may keep tax cuts for the wealthy for a while. True, benchmarking the U.S. President-elect is a global phenomenon, but Korea's governing party appears to be bent on imitating the surface of Obama's policy, not its essence.
Investment in public works programs could be one of the quickest and most effective ways to stimulate the economy and create jobs in the short term. The Chinese government is also planning a huge investment into replenishing so-called social overhead capital, including roads, ports and airports.
What's important is to select proper targets of investment, guaranteeing sufficient investment returns, which will differ in each country. The U.S. infrastructure facilities, built in the 1950s, may need renovation, and China, still largely an agrarian country, will also require massive construction of transportation facilities. On the contrary, Japan's huge spending on expanding infrastructure ended in failure with its overly extended road networks in remote provinces used only by "bears and squirrels." The government's policymakers should carefully consider which case Korea, a nation built relatively recently, belongs to.
Nor should they succumb to the temptation of easy fixes such as housing redevelopment projects, which would end up only rekindling the speculative boom and slowing the process of removing bubbles from the economy.
Even more controversial will be the moves to "resurrect" President Lee Myung-bak's campaign pledge of building a cross-country waterway. Recently, Lee's aides have made frequent remarks suggesting the governing camp could revisit the "Grand Canal" project.
It was only a few months ago when President Lee said he would not pursue the program, unless popular sentiment turned around to its favor. And as far as most people understand it, the failure of the proposed project is a foregone conclusion, not just because of its dubious economic feasibility, but also because of its disastrous, long-term effects on the environment.
If Cheong Wa Dae and the governing party push ahead with the waterway plan, it will inevitably split the nation in two at a time when unity is needed more than ever to tide over the economic recession.
Economists say the nation's biggest economic problem is its recent failure to make sufficient, long-term investments in basic science and high technology. This means Seoul should focus on the information, bio and environmental technologies as the next growth engines on a longer time horizon.
The spirit of the Korean New Deal, as it was in the United States some 70 years ago, should be to narrow the gap between the haves and have-nots by enhancing -- or restoring -- the middle class, which has all but disappeared since the 1997-98 financial crisis. nw

President Lee Myung-bak presides over an economic policy meeting between economic ministers and business organization chiefs at Cheong Wa Dae on Dec. 16, under the theme "Translate a Crisis into Opportunities" seen in the background.

(from left) President Lee joins representatives of economic and civic organizations in a rally to revive the economy at Gimpo Airport Sky City on Dec. 19, which coincided with the first anniversary of the Grand National Party's 2007 presidential election victory. The participants of the economic policy meeting between economic ministers and business organization chiefs, held at Cheong Wa Dae on Dec. 16.