Asia’s other reform story: South Korea

Don’t compare Korean president Park Geun-hye’s reform effort to Abenomics. Think Singapore.

This country’s relatively new leader has called for economic restructuring to reduce its reliance on exports, deregulate finance, boost services and support small, private companies. Is it China? Japan? Well, maybe, yes – but South Korea’s president, Park Geun-hye, is also out to reconfigure her nation’s industry.

And unlike the leaders of China and Japan, who promise much but have a more questionable track record of delivery, Park may prove more forceful in achieving her aims.

That’s because she is partly driven by South Korea’s uneasy position between its two bigger neighbours: as they reenergize their corporate sectors – not least in Japan, where a cheaper yen has boosted rival exporters – so Seoul must produce results.

This has thrown up comparisons to Shinzo Abe’s reform agenda in Japan. Of course, Abenomics’ "third arrow" of industrial restructuring seems to have missed the target – if it was even drawn from the quiver.

But Park’s ambitions are not about reviving the export fortunes of companies like Hyundai Heavy Industries or even Hyundai Motors. South Korea doesn’t have the luxury of being able to devalue its currency, for one thing.

But whereas preceding governments sought to coddle ailing chaebol-owned industries such as semiconductors and construction companies, Park’s take is focused more on cutting some of the red tape that can hamper service-orientated industries and helping smaller companies create jobs. She is also looking to strengthen South Korea’s social safety net.

The analogy isn’t Japan (to which South Korea is too often compared) but Singapore. In the aftermath of the Asian financial crisis, the old Singapore Inc, reliant upon its port and strong at exporting electronics and chemicals, had to make room for a new economy based on providing services to the region’s wealthy: hence a package of casinos, wealth management and medical facilities that, combined, now serve as a magnet for rich people from Mumbai to Jakarta.

“[Park’s] plan is to empower small- and medium-sized entrepreneurs, to give them access to finance so they can boost their R&D spending and help them export,” says Waiho Leong, Singapore-based economist at Barclays. “She wants to reawaken the services sector, which is 70% of the economy.”

Politically-speaking South Korea is not, of course, like Singapore. Park can only serve a single, five-year term as president, of which she is already one year in. She has to cajole and convince a variety of ministries to get behind her programme, whereas execution in Singapore is simple once the government reaches consensus. And no matter what agenda Park promotes, the reality of dominant chaebols will endure.

Jason Shin, managing partner at Vogo Investment Group, says the longer-term problem with the biggest chaebols is their success: they gobble up the best human and financial resources. “It’s hard for a new economy to thrive when the ten biggest companies win all the human talent,” he says. That state of affairs will be impervious to anything the government does, short of breaking up the chaebols – which no one in government is proposing.

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