South Korean economy needs major surgery: Park

Ms Park Geun Hye with officials and audience members after delivering a speech at the presidential Blue House in Seoul yesterday. She urged workers to accept a proposed wage cap system, under which older workers swop an extended retirement age for fi
Ms Park Geun Hye with officials and audience members after delivering a speech at the presidential Blue House in Seoul yesterday. She urged workers to accept a proposed wage cap system, under which older workers swop an extended retirement age for fixed salaries regardless of their seniority.PHOTO: AGENCE FRANCE-PRESSE

Reform push to include switch to merit-based wage system, salary cap

SEOUL • South Korea's President called yesterday for "major surgery" on the economy, which faces slowing growth and increasing challenges, as she approaches the halfway point of her single five-year term.

Ms Park Geun Hye, whose popularity has dipped below 40 per cent, has fallen short on pledges to breathe fresh momentum into Asia's fourth-largest economy and seen her push for labour market reforms and job creation sputter.

"Major surgery across the entire economy is inevitable for us to fundamentally solve chronic and structural problems and make a fresh leap as a major global player," she said.

South Korea's economy recorded its weakest growth in six years in the second quarter, consumption battered by a deadly outbreak of the Middle East respiratory syndrome and poor exports, prompting the government to scramble to put together a stimulus package with a supplementary budget. The economy grew just 0.3 per cent in April to June over the previous quarter, according to the Bank of Korea, the slowest since the first quarter of 2009.

South Korea has posted four consecutive years of economic growth below 4.0 per cent - unusually slow by its own demanding standards, and Ms Park warned global competition was becoming "fiercer" every day. "The coming three or four years will be a make or break period for the future of the Republic of Korea," she said.

Ms Park said the existing, rigid wage system in the public sector, which is based on seniority rather than performance, had to be replaced with a flexible, merit-based system. She also urged workers to accept a proposed wage cap system, under which older workers swop an extended retirement age for fixed salaries regardless of their seniority.

If all public companies adopted the system within a year, she estimated the savings would allow for the creation of 8,000 jobs for young people. "The reform the government is pursuing is not to benefit any particular group or generation but is a matter of life and death, where the future of all of us and our descendants is at stake," she said in a 20-minute speech.

South Korea will implement a salary cap this year on older and more experienced employees working for the government and state companies, she said, and urged companies to do the same to free up resources for employers to increase hiring of younger workers.

She pledged to further deregulate the financial service sector and to restructure the public sector to reduce waste and improve efficiency to the tune of 1 trillion won (S$1.2 billion) in tax savings a year.

REUTERS, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on August 07, 2015, with the headline 'South Korean economy needs major surgery: Park'. Print Edition | Subscribe