Government predicts a 5 percent growth rate

Posted on : 2010-12-15 14:35 KST Modified on : 2010-12-15 14:35 KST
Observers say the forcast is highter than any institution's and likely to cause side effects
 on Tuesday. (Cheong Wa Dae Photo)
on Tuesday. (Cheong Wa Dae Photo)

By Park Hyun, Staff Writer 

 

The government has projected a 2011 economic growth rate of “around 5 percent” and an increase in employment of “around 280,000 jobs.” Observers are calling the growth forecast excessively optimistic and pointing to inadequacies in job creation measures, an issue directly connected with citizens’ lives.

In a report on the 2011 economic policy reported to President Lee Myung-bak on Tuesday, the Ministry of Strategy and Finance said, “There is a risk of a downward trend, with the potential for deteriorating conditions overseas, but if we assume a slow recovery for the global economy and increased domestic demand, a growth rate of around 5 percent and an increase in prices of around 3 percent are expected.”

However, this growth forecast is higher than those made by research institutions in South Korea and overseas, which are predicting a rate of roughly 3.5 to 4.5 percent. This appears to take into account that the 2.9 percent average growth rate accomplished over the past three years of the Lee administration falls well short of its 7 percent target and that the year after next is the 2012 general and presidential elections.

Experts say that 5 percent growth is unlikely to occur amid a situation where the 2011 overseas economic environment is rife with uncertainty due to factors such as the European financial crisis, a slumping U.S. economy, the possibility of Chinese inflation, and the North Korea risk.

Observers say that side effects such as an asset bubble could arise if the government takes reckless economic stimulus measures, such as low interest rates and expanded construction expenditures, in order to reach the target.

In fact, the government has presented plans to promote the construction industry next year by abolishing the housing price ceiling system for private residential land and promoting real estate investment company activity. Hanyang University Economic Professor Ha Joon-kyung said, “The only way to achieve 5 percent growth would be to continue on with the current policy emphasis on short-term growth measures and large exporting companies.”

“The question is whether it will be possible to achieve the price stability, promotion of the working class economy, and management of household debt that the government has referred to in the process of achieving this 5 percent growth,” Ha added.

The government has also announced that it is switching from a “crisis management and response system” to a normal system of economic management, claiming that the financial crisis that began in 2008 has been normalizing. Accordingly, it decided to end the Hope Work project, a leading short-term job creation effort funded by the state.

But the 58.8 percent projection for the employment rate, the leading indicator of the employment situation, is one percentage point lower than the pre-crisis level of 59.8 percent in 2007. This means that there is still a shortage of 300,000 to 400,000 jobs compared to the period before the crisis.

At a press conference Tuesday, Finance Minister Yoon Jeung-hyun said, “Even 5 percent growth is not enough to solve the employment problem, including unemployment among young people.” However, he did not present any concrete measures to restore the employment rate.

Even the job creation measures put forward by the government Tuesday have the potential to exacerbate employment insecurity among current workers and the problem of irregular workers, with elements such as “an increase in flexible work systems” and a “foreign worker employment surcharge” intended to induce the replacement of foreign workers with Korean ones. Also, the government suggested an “employment success package” to provide job training for older and younger workers. However, the 2011 job training budget actually decreased compared to 2010.

Experts charge that the government has failed to break out of its old framework despite the presence of viable alternatives such as expanding the social services industry, which would allow for job creation with government support amid rapidly increasing demand. Kyungwon University Economics Professor Hong Jong-hak said, “The government’s priority goal right now should be job creation.”

“However, at the moment, the government is merely presenting measures for lowering wages and creating ‘bad jobs,’” Hong said.

Meanwhile, the Financial Services Commission (FSC) said Tuesday that it will “proactively carry out the most overriding task of preventing household debts and (construction) project financing loans from becoming potential risk factors.”

Please direct questions or comments to [englishhani@hani.co.kr]

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