With an ally like Trump, does South Korea’s president Moon Jae-in really need an adversary?
South Korea’s President Moon Jae-in did not blame Donald Trump for last week’s epic cabinet shake-up. But the US president’s name was written between the lines in bold type.
President Moon axed five of his ministers overseeing everything from trade to labour to defence. Moon, 480 days in office, faces growing discontent over a slowing economy, an intensifying trade war and setbacks on North Korea disarmament. But his desperate ploy for stability speaks volumes about Asia’s precarious position in the Trump era.
Moon’s plight rests partly with a terrible decision. In May 2017, he was elected to shake up a corrupt and inefficient corporate sector. Instead, he pivoted to North Korean peace. A very important pursuit, of course. But one going off the rails, thanks partly to Trump’s buffoonish behaviour.
Now, so are Moon’s pledges to retool a South Korean economy in harm’s way from Trump’s tariff arms race. Moon won the 2017 election promising to wrestle power away from the handful of family-owned conglomerates towering over the economy. He promised to catalyse a start-up boom, support small-to-medium enterprises and encourage greater risk taking.
So did his predecessor Park Geun-hye, of course. When she assumed the South Korean presidency in 2013, Park promised to reduce the dominance of family-owned conglomerates, known as “chaebol.” She wanted to increase support for small-to-mid-sized enterprises, step up antitrust enforcement and build a more “creative” economy.
Instead, she got co-opted by a system created by her father Park Chung-hee. In 2017, Park Geun-hye was removed from office on bribery and influence peddling charges. The controversy also tripped up Samsung’s de facto leader Lee Jae-yong.
But South Korea’s open economy is flashing warning signs for the rest of Asia. On Friday, the Bank of Korea left interest rates alone, while officials doused expectations for additional tightening moves this year. It’s quite an about-face, given that the BOK in late November became the first major Asian monetary authority to tighten monetary policy since 2011.
Moon’s government, too, is upping spending efforts to stabilise growth. Last week, the government launched a US$420 billion stimulus effort to keep growth as close as possible to the current 2.9 per cent rate.
The Trump effect is showing up faster in Korea than most Asian economies. With its open, moderately sized economy, Korea is often a useful barometer of what’s afoot in the global marketplace. New life on the trade negotiation front could pay dividends as Seoul renegotiates a 2012 free-trade deal between Korea and the US.
New energy on the labour front could help lower a 9.2 per cent youth unemployment rate. It also could help implement reforms that increase competitiveness and productivity. Anything to introduce cutting edge techniques to raise Korea’s global game would be greatly appreciated.
But really, Moon needs to push on with “chaebol” reform. Trump throwing grenades at markets is in no one’s best interest. But it is high time Korean leaders acted to curb the influence of a handful of giants hogging much of the economic energy.
Three of the last four leaders promised to turn Korea Inc upside down. Roh Moo-hyun (2003-2008) quickly realised the scope of the task and stepped aside. His successor came from the “chaebol” world; Lee Myung-bak (2008-2013) was CEO of Hyundai’s construction unit.
Then came Park, who wanted to break up monopolies, tweak taxes, increase antitrust enforcement, empower young entrepreneurs and invest in human capital. Rather, she got pulled into the swamp -and jailed on bribery charges.
Now, Moon is working to reverse the extreme concentration of economic power to clean up Korea Inc. It could work, certainly, but only if Moon upends the status quo. Moon may be doing just that as we speak.
William Pesek is a Tokyo-based journalist and author. He has written for Bloomberg and Barron’s