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South Korea's Moon is waning

President needs reforms to revive economy and political rating

It is hard to think of a top world leader having a worse Trump presidency than Moon Jae-in.

The South Korean president took office in May 2017 with a mandate to overhaul a rigid and aging economy. Instead, his team is struggling to navigate Donald Trump's trade war.

Moon's designs on a North Korean peace deal also got trumped by a mercurial White House. In March, Pyongyang reportedly called home ten heads of diplomatic missions, including from China and Russia. Such moves are often a precursor of provocations to come.

Events so far in 2019 dragged President Moon's approval ratings to all-time lows, 44% according to Gallop Korea, compared to 83% at the peak. That raises an eerily familiar question: has Seoul's latest structural reform push died before it really began?

It was asked around the two-year mark of Park Geun-hye's 2013-2017 presidency, one abbreviated by scandal. The answer was yes -- borne out by sluggish wage growth and waning competitiveness. It also was a yes at this point in Lee Myung-bak's 2008-2013 tenure. Like Park's era, it was a lost period for economic retooling.

With Moon now in office nearly two years, Korea has gone 11 years without major progress on its key structural economic challenge -- wrestling power away from family-owned conglomerates.

They dominate all in Korea. Not just the corporate sector, but the political sphere where deep-pocketed "chaebols" essentially call the shots.

Lee, remember, was a creature of the chaebol system. It was fanciful to think the former CEO of Hyundai Engineering & Construction would level the playing field in favor of smaller enterprises. He was arrested last year for allegedly accepting bribes and tax evasion, and released on bail just days ago, on March 6.

Park was also co-opted by a chaebol system she promised to curb. Her downfall was linked to Samsung, Korea's biggest business group. She is serving a 25-year prison term related to a bribery and influence peddling that, for a time, also had the head of Samsung Electronics in jail.

Lost in the drama was progress on, as Park put it, "democratizing" opportunity and building a more "creative" system. She had promised to alter tax dynamics in favor of startups, police monopolistic behavior, empower women and hasten growth enough to prod executives to boost paychecks. To no avail.

Enter Moon, who pledged to do all that and more. Voters responded well to his plans for "trickle-up growth," lowering youth unemployment, tackling high household debt and rebalancing engines away from exports.

Instead, he pivoted north, setting his sights of detente with North Korean leader Kim Jong Un. He even pulled Trump into the Korean nuclear conundrum, fueling criticism he had been too optimistic and naive.

As denuclearization hopes dampen, so do Korea's economic prospects. Earlier this month, International Monetary Fund officials visited Seoul on a fact-finding mission. They emerged convinced the trade-reliant economy requires fiscal loosening if it is going to meet Moon's 2.6% growth target this year. It grew 2.7% in 2018, the slowest in six years.

The economy could do with "an integrated package of further macroeconomic, financial and structural policies to support growth, raise potential output, and reduce excess internal and external imbalances, while preserving financial stability," IMF economist Tarhan Feyzioglu said on March 12.

Korea's 2019 budget of $416 billion allowed for a 10% spending boost from a year ago. Feyzioglu's team recommends another jolt equivalent to 0.5% of gross domestic product, or around $80 billion, in a $1.6 trillion economy.

Fortunately, Korea has some forward momentum on its side. In February, it added 263,000 new jobs, the most since January 2018. Also promising: new hiring so far this year has mainly been in services, not chaebol-dominated manufacturing-centric sectors. Yet external headwinds are intensifying, cooling demand for overseas shipments.

Korean exports are often a bellwether of global trade. The 11.1% plunge in February from a year ago, the third consecutive monthly drop, augurs poorly for international growth. It hardly helps that no one knows where the Trump White House might take its trade war next.

Prospects for a bilateral deal with China are dimming. On March 20, Trump signaled that Washington's taxes on some $250 billion of mainland imports are here to stay. "We're not talking about removing them," Trump said. "We're talking about leaving them for a substantial period of time because we have to make sure that if we do the deal with China that China lives by the deal."

Trump is still mulling 25% taxes on imports of cars and auto parts. He also fancies a weaker dollar. Trump's demand that Beijing, Tokyo and, presumably at some point, Seoul sign non-intervention agreements is code for "Asian currencies must rise."

That would add to Moon's challenges in the last three years of his term. And given how Moon has governed so far, there is ample reason for pessimism. Had his government multitasked better, it might have economic reform wins to paper over diplomatic missteps regarding Pyongyang.

Moon's political capital has waned along with public support rates. With legislative elections 12 months off, opposition forces smell blood. A spate of ill-timed scandals hardly looks good for a leader who pledged to cleanse politics.

In late January, Kim Kyung-soo, public relations manager of Moon's 2017 campaign, was sentenced to two and a half years in prison for allegedly manipulating public opinion on social media. Sohn Hye-won, a lawmaker close to Moon's wife, is accused of inappropriate real estate purchases in the city of Mokpo. And now there is a mushrooming sex scandal involving the multibillion-dollar K-pop industry, a key driver of Korea's global image. In March, Moon ordered a high-level investigation.

Add all this to the list of distractions as Moon tries to salvage his 2019 -- and avoid lame-duck status. It includes fast-deteriorating relations with Japan, it's No. 3 trading partner, over reparations dating back to World War II.

While there is still time to turn things around, Moon's window for action is closing. Fiscal stimulus of the kind the IMF advises is the easy part. Moon must tend to the hard stuff that his predecessors avoided. That includes tax changes to incentivize smaller companies outgunned by the chaebol, tightening corporate governance, assertive antitrust policies to level playing fields and creative ways to reduce a 9.3% youth unemployment rate.

South Korea would be less vulnerable to Trump's exploits if Moon's predecessors had generated reformist momentum. Instead, complacency won the decade. If Moon is going to shake up the country, he needs to act now.

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia for his Nikkei Asian Review work.

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