South Korea sets sight on real estate, financial reform to spur economy

The Korean Finance Ministry also expects the economic growth rate to fall to 1.6 percent next year, amid woes of a global recession and high interest rates.

Im Eun-byel

Im Eun-byel

The Korea Herald

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Financial Minister Choo Kyung-ho speaks at a press briefing held at the governmental complex in Seoul, Wednesday. (Yonhap)

December 22, 2022

SEOUL – Finance Ministry offers growth outlook at 1.6%, lower than BOK, KDI estimates

The Korean government has vowed to bring back the economy, speeding up regulatory reforms on real estate and financial markets.

Deputy Prime Minister and Finance Minister Choo Kyung-ho highlighted the goals while unveiling the economic policy directions for next year at the government complex in Seoul on Wednesday.

According to Choo, the four pillars of the state’s economy management will be freedom, innovation, fairness and solidarity.

“Korea has been showing good performance, maintaining a relatively low inflation rate compared to major countries, showing more potential growth and recording high employment,” Choo said.

“However, the economy is still facing difficulties from circumstances in and out of the nation,” Choo said. “Next year, crises from overseas will come in full swing for the local economy and difficulties will continue.”

As warned by Choo, the Finance Ministry expects the economic growth rate to fall to 1.6 percent next year amid woes of a global recession and high interest rates. The figure is lower than the 1.7 percent and 1.8 percent suggested by the Bank of Korea and the Korea Development institute, last month, respectively.

It is the first time for the government to forecast a lower figure for next year’s economic growth rate than the Bank of Korea.

“We focused on delivering the most honest, objective forecast based on the available data,” Choo said, when asked about the exceptionally low figure for next year.

The ministry projected the Korean economy will be in a slump next year, until it makes a slow recovery in the second half of 2023.

Similar to the previous years, stabilization of the real estate market is one of the foremost missions for the Korean government. But the stance of governmental measures will take a turn to deregulation.

The government calls for a “soft landing” scenario to cool down the overheated market, “normalizing” the regulations on the real estate market for multi-home owners and those with actual demand.

For multi-home owners, the government will ease down on the heavy acquisition tax and increasing the loan-to-value ceiling to 30 percent.

It also pledged to lift the regulations on actual residence and resales to that of five years ago, while seeking to raise the LTV ceiling for those who do not own homes, depending on the conditions of the market and household debts.

The Ministry of Land, Infrastructure and Transport will make separate announcements in early 2023.

Reforms in the finance, service and public sector have been forecasted. One of the government’s agenda items for next year is “protection of digital asset investors,” reflecting the recent collapses in the cryptocurrency market.

Sizing down on governmental funds is another measure that will be taken to help market stabilization, reflecting the recent Legoland crisis.

To attract foreign capital to boost the economy, the government vowed to prevent double taxation of dividends of foreign subsidiaries.

It also promised to hold pangovernmental roadshows overseas to lure foreign investments to Korea.

Another agenda item for next year is to make the country meet the global standards of the World Government Bond Index, by exempting tax on the interest and capital gains of governmental bonds of foreigners.

After being put on the WGBI watch list in September, Korea is awaiting the final decision which could come as early as March.

Exports are expected to show a weak performance next year.

As a country heavily reliant on exports, Korea hopes to expand its market pool by signing free trade agreements with countries in the Middle East, Central America and Latin America and Africa.

The government said it can develop foreign markets by expanding the Official Development Assistance projects. It added that it will participate in ODA projects for rebuilding Ukraine when the war ends to take part in the “global solidarity.”

The government also plans to lead reforms in labor, education and pension. The need for a pension reform has been raised continuously, as data suggested the national pension fund will be depleted of its reserves by 2055.

To prepare for the future, the government will seriously address the population crisis of Korea, currently haunted by low birthrates and its aging society.

To increase its workforce, Korea will expand the quota for the E-9 visa — widely used by foreign workers — from 69,000 to 110,000 and seek to grant the visa applicants with mid- and long-term work permits.

It also hopes to promote economic activities of women whose careers are interrupted due to child birth. Measures include encouraging businesses to shorten the working hours of employees with young children and expanding afterschool child care hours at elementary schools.

The government will announce a road map on providing higher quality jobs for women during the first half of next year.

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