South Korea unveils its own “third arrow” to boost medium-term growth

SEOUL - In an announcement reminiscent of Japan’s recent efforts to revive its economy, South Korea’s President, Park Geun-hye, hasy announced a “three-year economic innovation plan” aiming to lift medium-term growth, labour participation, and per capita income. Specific targets include a 4% annual GDP growth rate (compared with 2.8% in 2013), 70% labour participation rate (up from 65% at present), and per capita income of US$40,000 (up from US$28,000 at present).

The plan aims to open more sectors - such as railroads and public housing – to private investment. It also hopes to boost service sector productivity by increasing R&D investment and promoting business start-ups.
BBVA Bank researchers say the goals and reforms are realistic, although more could be done to boost South Korea’s growth potential - by reducing the role of the big conglomeates (the chaebol) and increasing the flexibility of the SME sector.
“That said, Korea is bright spot in Asia, having significantly reduced its external vulnerability and reliance on short-term debt since the global financial crisis, and positioning itself to take advantage of the ongoing pickup in the US and EU. We expect GDP growth to rise to 3.6% in 2014 and to 4.0% 2015,” BBVA says. www.bbvaresearch.com (ATI).