Breaking News

Pfizer Second-Quarter Adjusted EPS 58c vs. Estimate of 57c
Tweet TWEET

Park’s South Korea Stimulus Plans at Risk as Vote Looms

Photographer: SeongJoon Cho/Bloomberg

South Korean President Park Geun Hye wants to boost the nation’s growth rate to 4 percent and the employment rate to 70 percent by encouraging more entrepreneurship in Asia’s fourth-largest economy, which is expanding slower than forecast. Close

South Korean President Park Geun Hye wants to boost the nation’s growth rate to 4... Read More

Close
Open
Photographer: SeongJoon Cho/Bloomberg

South Korean President Park Geun Hye wants to boost the nation’s growth rate to 4 percent and the employment rate to 70 percent by encouraging more entrepreneurship in Asia’s fourth-largest economy, which is expanding slower than forecast.

South Korean President Park Geun Hye’s plans to stimulate the country’s economy are in jeopardy as her ruling party faces a fight to hold on to its parliamentary majority in upcoming by-elections.

Park’s Saenuri party must win at least four of the 15 seats being contested at the country’s biggest special poll on July 30 at a time when her approval rating has slumped, hitting a record low of 40 percent at the start of this month from 61 percent in March, according to a Gallup Korea poll released on July 4.

Park wants to boost the nation’s growth rate to 4 percent and the employment rate to 70 percent by encouraging more entrepreneurship in Asia’s fourth-largest economy, which is expanding slower than forecast. Incoming Finance Minister Choi Kyung Hwan has pledged to consider all possible steps to boost growth, including an extra budget that hasn’t got the support of the main opposition New Politics Alliance for Democracy.

“Theoretically, passing bills would be made impossible if Saenuri is defeated,” Oh Jung Gun, an economist at the Korea Economic Research Institute in Seoul, said by phone. “Carrying out economic policies would get tough across the board, and Choi may fail his bid to stop the economy from slowing.”

South Korea’s economy grew 3 percent last year, less than half the more than 6 percent expansion in 2010, and the forecast for 2014 was cut by the Bank of Korea on July 10 to 3.8 percent from 4 percent. The bank cited weaker-than-expected domestic demand.

Replacing Lawmakers

The July 30 polls are to replace 10 lawmakers who ran for municipal elections on June 4 and five more who were disqualified from parliament for breaking the law, according to the National Election Commission.

A rise in the won to near six-year highs also threatens to damp growth that’s showing signs of sputtering. Samsung Electronics Co. (005930), the country’s biggest exporter, cited a strong currency and a drop in its smartphone market share for posting a second-quarter profit that missed analyst estimates on July 8.

The won was little changed at 1,019.02 per dollar as of 10:04 a.m. in Seoul after its biggest weekly drop since March last week, according to data compiled by Bloomberg.

South Korea needs stimulus,” Wai Ho Leong, a Singapore-based economist at Barclays Plc., said. “Fiscal spending is much faster and can be directed at weak spots. It’s much better medicine than a rate cut, which takes three quarters to have any effect on the economy.”

Citibank Projection

The country needs about 15 trillion won in a supplementary budget and an interest rate cut of 25 basis point to achieve growth targets this year, Chang Jae Chul, a Seoul-based economist at Citibank Korea Inc. said. He expects an outlay similar to last year’s 17.3 trillion won extra budget in April, which was followed with a rate cut on month later May.

The July 30 vote is a test of public confidence for Park whose popularity dived after what she called botched rescue operations in the April 16 ferry sinking that left more than 300 people dead or missing, most of them high school students.

Park’s popularity suffered further setbacks after her two nominees for prime minister withdrew from consideration in the past two months. Two other cabinet picks also face resistance from opposition in confirmation hearings, including an education minister nominee who denies allegations of plagiarism.

Of the 285 lawmakers in the single-house National Assembly, the ruling Saenuri party has 147, or 52 percent, and its main opposition, the New Politics Alliance for Democracy, has 126, or 44 percent, while minor opposition parties and independents account for 12 seats.

Majority Risk

“If the majority is lost in the by-elections, the Park government won’t be able to carry anything out for the rest of her term,” five-term Saenuri lawmaker Kim Moo Sung said July 6 in a speech at a party convention, according to his office.

The opposition NPAD may not rout Saenuri at the polls because it is also facing public criticism for creating internal turbulence over nominations for candidates, said Yoon Hee Woong, a public opinion analyst at Min Consulting in Seoul.

Saenuri has a national approval rate of 41 percent while three opposition parties together hold 35 percent. NPAD leads among opposition groups with a rate of 28 percent while 24 percent, or nearly a quarter of voters, say have no specific party they support, according to a July 11 Gallup Korea poll that also saw a slight rise in Park’s approval rating to 43 percent.

Public Anger

Only three of the 15 constituencies are in the southeastern province that is the ruling party’s stronghold.

Park withstood public anger over the Sewol ferry sinking after Saenuri and NPAD split local elections in early June, her first electoral test since taking office in February last year. She vowed after the vote to bolster efforts to accelerate growth, carrying out a cabinet shakeup that she said would boost the effectiveness of her three-year economic plan.

“I recognize that an extra budget is necessary if we only look at economic conditions,” Choi said July 8 at a confirmation hearing. “But other factors including fiscal and legislative conditions need to be considered for a decision to be made.”

Further signs that the economy isn’t picking up may mean demand for stimulus measures gather pace, whoever is in parliament.

“Stimulus or not, it’s not a political fight, it will become a logical decision if growth trajectory is well below what everyone had expected,” said Oh of the Korea Economic Research Institute. “Then it will be difficult for opposition lawmakers to turn down one as pressure from the business community will be severe.”

To contact the reporter on this story: Sam Kim in Seoul at skim609@bloomberg.net

To contact the editors responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net Neil Western, Stuart Biggs

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.