While Kim Jong-un is getting the headlines in South Korea, there’s an equally problematic threat on the horizon: an underperforming economic regime.

Economist Lee Jong-wha doesn’t mince words in a new Project Syndicate op-ed, headlined “South Korea’s Looming Crisis.”

Nor is the Korean University professor being bombastic as he urges newish President Moon Jae-in not to wait even a second to tackle structural impediments to increased wages, greater income equality and a troubled industrial model.

“That means accelerating domestic structural reforms to improve productivity, enhance labor-market efficiency, upgrade institutions, and foster a business environment that supports modern service industries and innovative start-ups,” says Lee, a former economist at both the International Monetary Fund and the Asian Development Bank.

Here’s the problem.

In the late 1990s, the slow pace of markets reforms came back to bite Seoul. The chaos unleashed by Thailand’s devaluation toppled Indonesia on the way to Korea, then the 12th biggest economy.

Once Korea fell over, there was little to keep Asia’s crisis from reaching, and slamming, stocks from Tokyo to New York.

Economists like Lee are right to lament how South Korea waited for the crisis to erupt to address chronic imbalances from excessive corporate debt to weak competitiveness to rigid regulatory norms.

Those post-1997 reforms sustained Korea in the 15 years or so to follow. Seoul’s success in strengthening the soundness of banks and companies, rebuilding foreign-currency reserves and increasing transparency paid off in 2008 when it avoided the worst of the Lehman Brothers crisis.

It confounded naysayers betting that it would be the next Iceland. Seoul did that again in 2013, standing its ground when the Federal Reserve’s “taper tantrum” savaged emerging markets.

But a quiet menace ate away at South Korea’s foundations: complacency.

But a quiet menace ate away at South Korea’s foundations: complacency. Post-1997 Presidents Roh Moo-hyun, Lee Myung-bak and Park Geun-hye all pledged to create a more innovative services-based economy to replace the export-led model of old.

Park, who entered office in 2013, went further, planning to curb the excesses of the family-owned conglomerates, or chaebol, towering over Asia’s fourth-biggest economy.

Instead, she got co-opted by the chaebol system, eventually getting impeached amid a bribery and influence-peddling scandal that landed Samsung head Lee Jae-yong in jail and also put Park in the dock.

South Korean ousted leader Park Geun-hye arrives at a court in Seoul, South Korea, May 23, 2017. Reuters/Kim Hong-Ji
South Korean ousted leader Park Geun-hye arrives at a court in Seoul, South Korea, May 23, 2017. Reuters/Kim Hong-Ji

Enter Moon, who took office May 10, pledging to produce an average 3% growth rate, create more than 800,000 jobs and reduce record household debt, while engineering a “complete paradigm shift” from a nation dominated by chaebol giants to one driven by startups and game-changing innovation.

The Kim regime in North Korea is making it near impossible for Moon to focus solely on economic retooling. Yet each day Moon is distracted from raising Korea’s game puts it on a Japan-like trajectory that could lead to Seoul’s own lost decade.

If labor-market inefficiencies, failure to better utilize the female workforce, weak institutions and low productivity aren’t addressed soon, income inequality will widen.

If labor-market inefficiencies, failure to better utilize the female workforce, weak institutions and low productivity aren’t addressed soon, income inequality will widen.

Geopolitics isn’t helping. Upset about Seoul hosting US-built missile-defense systems, Beijing is curbing trade flows, shuttering Lotte department stores, inspiring consumer boycotts of Hyundai vehicles and cancelling mainland tour groups.

Donald Trump’s White House, meanwhile, is irked by Moon’s policy of détente with Pyongyang and tearing up a five-year-old free-trade deal to retaliate. China (25% of South Korean exports) and the US (13%) tightening the economic noose makes Moon’s 3% goal look all the more difficult.

In the 1990s, Lee explains, “South Korea waited for matters to come to a head before responding. This time, it must nip the incipient crisis in the bud.”

That means both accelerating domestic reforms and strengthening diplomatic ties from Beijing to Washington to reduce economic damage and tamp down military threats.

“Neither agenda will be easy to pursue,” Lee says. “But South Korea’s future prosperity, if not its very survival, depends on its leaders’ efforts on both fronts in the months and years ahead.”