With state institutions cutting their GDP growth forecasts for 2018, South Korea’s finance minister said Thursday that Seoul will raise next year’s budget spending to boost growth and tackle perennial problems in Asia’s fourth largest economy.
The announcement followed hot on the heels of last week’s announcement that the country’s leading conglomerate, Samsung, will be making massive investments, largely in Korea, over the next three years.
Speaking on Thursday, Finance Minister Kim Dong-yeon said next year’s budget spending expansion will be 7.7%, compared with this year’s 5.7%, according to Yonhap news agency.
Underwritten by anticipated increases in tax revenues of 60 trillion won (US$53.1 billion), the raised spending is designed to create more jobs and expand the social safety net in the face of rising uncertainties and inequalities, Yonhap reported.
The planned increase in budget spending comes as both the Bank of Korea and the ministry have cut their annual growth estimates for 2018 from 3% to 2.9%. And amid high youth unemployment and underemployment, job creation targets have also plummeted from 320,000 to 180,000.
The left-leaning Moon Jae-in administration, which took power in 2017 after the impeachment of conservative President Park Geun-hye, continues to enjoy high popularity ratings and benefits from a conservative opposition that is in total disarray. But it has recently faced criticism from the business community and the media for raising the minimum wage while cutting working hours.
“This [budget increase] resolves around the president’s determination to expand the social welfare overheads and make more money available to try and narrow the gap between the haves and have nots,” said Hank Morris, a Seoul-based financial advisor, of the budget rise. “His constituency is very much on the have nots’ side so he is trying to do his best to improve their lot.”
The news of increasing government spending follows last week’s news of massive investments by the country’s leading conglomerate, Samsung Group, soon after a meeting between the president and the head of the group.
Electronics giant Samsung announced on August 8 that it would invest approximately 25 trillion won, or US$22 billion, over the next three years in growth areas including artificial intelligence, 5G technologies, electronic components for future cars and bio-pharmaceuticals.
The investment will be encompassed within an even bigger 180 trillion won of investment plans that include capital expenditure and R&D. The investments will be injected over the next three years; some 40,000 jobs are expected to be created, Samsung said.
Nearly two thirds of the total investments – 130 trillion won – will be in Korea, according to Samsung. Moreover, Samsung and the Korean government will jointly set up a 110 billion won fund to help 2,500 SMEs for the next five years, the corporation said in its announcement.
Samsung’s plans appeared soon after President Moon had met Samsung Vice-President and de facto leader Lee Jae-yong in India. Moon, on a state visit, joined Lee at the opening of a new Samsung plant in the country on July 9 and the two held an unscheduled, five-minute chat, during which Moon asked Lee to invest and increase domestic employment.
Local media speculated that Samsung might make a 100 trillion won investment.
Previously, the left-leaning administration has called chaebol – the giant, family-founded conglomerates which dominate the Korean economy – part of the country’s “deep-rooted evils.” It had also appointed anti-chaebol activists to government positions.
But of late, Moon’s stance appears to have shifted. Prior to his meeting with Lee, on July 2, the president reportedly told senior officials of the importance of strengthening communication with businesses.
The nexus between business and government in Korea has long been controversial. “It is not at all unusual for chaebol to announce investment plans to please the government,” said Morris. “It is really quite expected.”
Even so, he added: “But I would say Samsung always has to invest as it can never take for granted its position in the mobile, display device and chip markets.” The pro-Samsung Joongang Ilbo newspaper editorialized on August 9: “Government beseeching companies for more investment is nothing out of the ordinary … no economy can run without corporate contribution and activities.”
Lee was released from jail earlier this year on appeal, after one year behind bars. He had been jailed for five years in connection with the massive corruption and influence-peddling scandal that brought down the Park administration. The court reduced his sentence to two-and-a-half years and suspended it, allowing him to return to the helm of Samsung.
Lee, the third generation of his family to head the company, is in charge as his father, Lee Kun-hee, is in a coma from which he is not expected to recover.