South Korea's President Park Geun Hye calls for nation to 'desperately' push for economic reforms

President Park Geun-hye delivers a speech at the presidential Blue House in Seoul on Aug 6, 2015.
President Park Geun-hye delivers a speech at the presidential Blue House in Seoul on Aug 6, 2015. PHOTO: REUTERS

SEOUL (Reuters/AFP) - South Korean President Park Geun Hye on Thursday called on the country to "desperately" push for reforms of the economy, which faces slowing growth and increasing challenges.

She also said in a televised speech that Asia's fourth-largest economy needed significant reform to achieve more sustainable growth, calling for "major surgery" to deal with problems.

She also vowed to push through labour reforms to ease growing youth unemployment at what she termed a "make or break" moment for Asia's fourth-largest economy.

Roughly halfway through her single, five-year term, Ms Park warned during a live TV address that the coming three to four years were critical for placing the economy on a long-term, sustainable growth path.

With a rapidly ageing population posing tough productivity challenges, Park said reforms were necessary to shake up the public and financial sectors, as well as the labour market and education.

"In order to resolve chronic structural problems... the economy needs a massive overhaul," she said.

South Korea has posted four consecutive years of economic growth below 4 per cent - unusually slow by its own demanding standards, and Ms Park warned that 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 swap an extended retirement age for fixed salaries regardless of their seniority.

If all public companies adopted the system within a year, Ms Park estimated the savings would allow for the creation of 8,000 jobs for young people.

The unemployment rate for people aged between 15 and 29 stood at 10.2 per cent in June, and Ms Park said economic difficulties were preventing young people from starting families - exacerbating the demographic shift to a more aged population.

"It's high time we made a decision for our sons and daughters and for the future of the country," Ms Park said.

The youth unemployment problem has deepened with the rise in the number of people being employed as irregular workers, who companies can shed more easily when times get hard.

Ms Park's labour reform plans are sure to be met with stiff union resistance, but the President said full-time and high-salaried workers need to "make concessions" for the younger generation.