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Politics

Moon steps back from populist agenda with call for deregulation

Job growth sluggish despite economy expanding 0.7% in second quarter

President Moon Jae-in adjusts the microphones at a lecture in Singapore July 13.   © Reuters

SEOUL -- South Korean President Moon Jae-in appears to be pursuing more corporate-friendly policies as the populist platform that put him in office more than a year ago delivers unimpressive results.

Moon outlined his intention to scrap regulations and accelerate innovative growth during a meeting Monday at the presidential Blue House. The president also said he will lead monthly meetings to review efforts to cut red tape.

This follows Moon's July 19 visit to a university hospital outside of Seoul, where he pledged to develop medical equipment into a new industry. To achieve that, Moon said he will "lower regulatory barriers" and "radically shorten" the time it takes for new players to enter the market.

Since winning the snap presidential election in May 2017, Moon had stuck to a worker-friendly stance and generally shied away from deregulation, which voters tend to view as benefiting corporations. But the president's latest statements have South Korea's business community thinking he has shifted focus from redistribution toward economic growth.

The change in tune seems to stem from some lackluster early results for Moon's signature "income-led growth" policy, which aims to encourage job creation and wage hikes to buoy the economy. Employers added only 100,000 or so new jobs during each of the five months through June, a level last plumbed in the 2008 global financial crisis.

This is in spite of solid economic growth. GDP rose 0.7% in real terms in the second quarter from the previous three-month period, according to preliminary estimates Thursday from the Bank of Korea, the central bank. That equates to annualized GDP growth of 2.9%, on par with the potential growth rate.

Moon pledged to raise minimum hourly wages gradually to 10,000 won ($8.93) by 2020. The administration enacted a 16.4% hike to 7,530 won in January. But after a backlash from small business owners, the government said this month that next year's hike will be only 10.9% to 8,350 won.

The Blue House in effect abandoned its 10,000-won promise. Administration officials have even omitted "income-led growth" from their vocabulary recently.

Internet banking reforms under debate will test Moon's seriousness about a shift toward growth through deregulation. South Korea currently mandates that a commercial enterprise cannot own more than 10% of a bank. The firewall was installed to prevent powerful family-owned conglomerates, or chaebols, from gaining control of banks.

But that restriction has hindered the growth of online banks. K-bank, affiliated with the telecom group KT, launched last year as South Korea's first internet bank. It was followed by KakaoBank, partly owned by the major internet company Kakao. But capital restrictions inhibit the two banks from raising funds to expand.

A bill to exempt internet banks from the rule is being considered by a South Korean parliamentary committee. That committee decided to transfer one of its members, a lawmaker belonging to the ruling Democratic Party of Korea who opposes deregulation, to another legislative panel. Observers say this move signals an openness to easing regulation.

Moon's populist supporters are resisting. The People's Solidarity for Participatory Democracy, a citizens group that advocates for the breakup of chaebols, says it cannot accept Moon's continuation of pro-corporate economic policies adopted by conservative predecessor Park Geun-hye, now imprisoned on a corruption conviction. Many group members hold senior positions in the Blue House.

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