SEOUL: The government’s 2016 economic policy plan is aimed at maintaining growth momentum both in domestic demand and exports to let people feel economic vitality in the third year of the Park Geun-hye administration.
The Ministry of Strategy and Finance and six other economy-related ministries reported their annual policy plans to the President on Thursday, focusing on keeping the pace of recovery alive that started in the third quarter when the country grew to a five-year high of 1.3 percent on-quarter, while the country posted an on-year drop in exports every single month last year.
The report comes amid growing concerns over the performance of Asia’s fourth-largest economy, which remains haunted by still weak domestic consumption and slackening exports stemming from China’s slowdown and other unfavorable external conditions. On the domestic side, the government will frontload some 30 percent of its 2016 budget in the first quarter and host various sales events to prop up recovering domestic demand.
Last year’s massive sales promotions, along with tax cut programs on cars and other expensive appliances, were successful in getting the economy out of its sluggish mode stemming from the Middle East Respiratory Syndrome outbreak. It will also map out new plans to expand visa waiver programs and improve duty-free shop license rules in a bid to attract more foreign tourists.
Plans to revise income tax codes and reduce housing expenses will also be on the front burner to give people more room for additional consumption, said the government. To spur local spending and promote investment at the same time, the government will step up its deregulation drive and funnel 5 trillion won (US$4.13 billion) into new technology industries.
The 2016 plan also includes support for local exporters and the attraction of Chinese investments by fully utilizing the Korea-China free trade deal that went into effect late last year.
Exports, South Korea’s key economic driver, plunged 7.9 percent in 2015 from a year earlier due to weakening global demand stemming from slowing global trade and falling oil prices.
The government will help local companies make greater headway into the vast market by running a 4 trillion won program to support exporters to build sales distribution networks in China and seek mergers and acquisitions to enter the market.
The government will also offer 4.8 trillion won in trade-related financing in 2016 and lower export insurance premiums to bolster consumer goods exports. New Finance Minister Yoo Il-ho said earlier that he can pull off 3 percent range growth this year, thanks to steady recovery in domestic demand and the effects of past stimulus measures.
The finance ministry recently lowered its growth estimate for 2016 from 3.1 percent, while global investment banks are predicting an average of 2.6 percent growth for Asia’s fourth-largest economy. Experts, however, pointed out that the government plan puts more emphasis on attaining short-term achievements rather than putting forward fundamental solutions to foster the nation’s growth potential.
“The 2016 policy plan is about short-term actions, lacking mid- and longer-term measures to improve the local economic environment and make an effective export strategy,” said Lee Jun-hyup, a senior researcher at Hyundai Research Institute. “Some projects have no supplementary measures and others can cause side effects,” said Prof. Baek Ehung-gi from Sangmyung University. “The government has constantly frontloaded spending for years. I doubt its effects.”