South Korea must make its labor market more flexible and take heed of Japan’s mistakes because failure to do so could result in more serious repercussions, the head of the country’s top state-run economic think tank said Wednesday.
Speaking to top executives at Samsung Electronics Co.’s headquarters in Seoul, Korea Development Institute (KDI) President Kim Joon-kyung warned the country’s future will be bleak if Seoul follows Tokyo.
“Japan poured huge sums of money up until the early 2000s to revive the economy, yet such measures only pushed up the country’s national debt to 250 percent of its GDP without having the desired effect,” he argued.
Even with such measures, Japanese policymakers were not able to stem deflation or stabilize the real estate market, he said, and Japan’s home prices are still falling.
South Korea is battling deflation worries after consumer prices advanced some 1.3 percent on-year in 2014, far below the target band set by the central bank. There were even months when inflation numbers, compared to the month before, contracted, with the finance ministry confirming that consumer prices have grown less than 1 percent on-month for 26 months in a row as of December.
Seoul’s central government debt reached 509 trillion won (US$472 billion) as of November, up from 502 trillion won the month before and much higher than the 464 trillion won tallied at the end of 2013.
For now, South Koreans, unlike their Japanese counterparts, are still buying homes, which is helping to stabilize housing prices, Kim said.
One way to breathe new life into the economy is to enhance flexibility in the labor market and to be open to immigration, he said.
“Of the major countries in the world, only the United States has been able to recover fully from the 2008 global financial crisis,” the expert said, and the key has been its flexible labor market.
The KDI president repeated that the central bank could take a more “open approach” to its monetary policy stance, a hint that he would like to see the Bank of Korea (BOK) lower the key interest rates that have stayed fixed at a record low 2 percent since October.
He said that while there are fears that implementing open monetary policies could lead to inflation, they are overstated because the BOK and financial regulators can keep close tabs on any adverse changes to the economy. (Yonhap)
