Korean Revivalism: Choinomics, Not Abenomics

In S Korea, they don't call it the "Ministry of Strategy and Finance" for nothing.

I haven't had this feeling since the Clone Wars: South Korea together with its fellow Asian tigers have gained a reputation for following trends set in Japan, the archetypal story of development. There is even a theory based on the idea that Japan's example is sequentially emulated by others in earlier stages of development, the "flying geese model." Despite modern-day Japan being much different from its go-go (grow-grow?) days, trends established there still have a way of being copied by other Asian countries. It's not just manufactures for export that they emulate but also services as well as governance trends.

Today's case in point is economic reform. While I have bashed Abenomics as a half-hearted set of reforms that will only swell Japan's astronomical national debt--already over 200% of GDP and counting--Abenomics has the usual novelty appeal of reform measures. (The key to success for a debt-laden country is to pile on even more debt!) That is, they promise change after years and years of same old, same old. Especially after the Korean ferry tragedy, the general's daughter Park Geun-hye  has been looking to make changes. Hence the installment of a new finance minster, the titular Mr. Choi, who has been a dervish since gaining the position less than a month ago:

Three frenetic weeks into the job, South Korea's new finance minister Choi Kyung-hwan has made such a splash that his name already describes Seoul's plans to rev-up faltering growth. But while "Choinomics" is proving an effective quick fix, lifting markets and giving an unpopular government a boost, it falls short thus far of a full-fledged manifesto similar to the "Abenomics" launched by Japanese Prime Minister Shinzo Abe in late 2012 to shake his country from its economic torpor.

Economists say bolder measures to reform structural weaknesses are needed to head-off what Choi warns is a serious threat that Asia's fourth-largest economy could slide into Japan-style stagnation. The veteran lawmaker's plan combines extra spending with an easing of mortgage curbs to boost the property market, a proposal to tax excess corporate cash reserves, and not-so-subtle pressure on the central bank to ease interest rates.

OK, so the Abenomics comparison is not like-for-like since Abe is a prime minister and Choi a finance minister. Then again, public expectations have been lifted in both instances, most visibly through rising stock indices:

It has already helped dispel some of the gloom hanging over the economy since the April 16 sinking of the Sewol ferry that killed more than 300 people.Since Choi's appointment, the benchmark stock index has risen 4 percent in anticipation of higher dividends, while bond prices are also up, reflecting rate cut bets. Some economists are also revising up their growth forecasts.

So far it's similar to what happened in Japan in the early days of Abenomics: higher equity valuations buoyed by expectations of interest rate cuts that also raise bond prices. However, just as Japan has not really made the structural changes most non-Japanese advise such as opening the depopulating country up to migration, increasing competition in domestically-oriented and not just export-oriented industries, many of those in South Korea are still just promises. In South Korea, questions surround excessive dominance of chaebol or massive conglomerates that are the country's counterparts of Japanese zaibatsu at the expense of presumably more dynamic SMEs:

Choi - nicknamed "the Bull" for his hard-charging style - is promising more, including an expansionary budget next year and possibly beyond. Further potential steps include relaxing construction regulations, incentives for companies to hire part-time workers, and encouraging investment in services and smaller enterprises .Some commentators credit "Choinomics" for the ruling party's strong showing in last week's by-elections, where it won 11 of 15 contested seats, strengthening its majority and making it easier for Choi and Park to push further reforms.

"The opposition will be more receptive to the government's push to boost domestic demand," said JPMorgan economist Lim Ji-won. However, Choi is unlikely to pursue policies that would inflict much pain on chaebol, which power South Korea's exports and back Park's conservative Saenuri Party. 

Therein lies the rub: how much reform can you make when those who need reforming are your benefactors--the chaebol? Certainly there have to be other enterprises of note other than Korean giants? Watch this space