South Korea’s Park would leave economy mired in challenges

SEOUL, South Korea – The heir to the Samsung empire and other tycoons took a public drubbing by lawmakers Tuesday over deep-rooted ties between politics and business that helped drive South Korea’s economic ascent but are central to its political crisis.

The questioning on national TV of Samsung Electronics vice chairman Lee Jae-yong, 48-year-old only son of the company’s ailing chairman, and eight other business leaders was in response to prosecution claims that President Park Geun-hye allowed a corrupt confidante to pull government strings and extort big sums from companies.

Lee apologized repeatedly, without saying what he was apologizing for, and sought to distance himself from Park’s friend and shadowy adviser Choi Soon-sil.

“There are many things that I myself feel embarrassed about and I regret that as we have disappointed the public with many disgraceful things,” Lee said.

The bright expectations for Park when she took office nearly four years ago promising a “happy era” of entrepreneurship and greater equality have dimmed to deep disappointment as the country’s biggest political scandal has unfolded.

With Park facing the threat of impeachment over the scandal, her successor stands to inherit an economy, Asia’s fourth largest, that is struggling with no easy solutions on the horizon.

Household debts have surged to a record high while the youth unemployment rate peaked at a record-high 12.5 per cent in February and stood at 8.5 per cent in October. The gap between wages for full-time, career jobs and contract work has widened, while quarterly growth has been below 1 per cent for a full year.

South Korea’s two-biggest biggest brands, Samsung and Hyundai Motor, are seeing their profit sag.

Younger South Koreans have taken to calling their country “Hell Joseon,” referring to an ancient feudal kingdom.

“What good is it for people in their 20s to have hopes for the future?” Baek In-pum, 19, a student at a top university, said during a recent rally near the presidential office. “People are struggling but that doesn’t bring a better future. The future will also be full of pain.”

Baek said he doubts he could ever afford to buy his own home.

Older supporters of Park had hoped she would replicate the success of her father, Park Chung-hee, who is revered for guiding South Korea’s rapid industrialization while he ruled as a military dictator from 1961-1979.

“I thought Park Geun-hye would be smart like her father. I feel terrible about how stupid she turned out to be,” said Chae Woo-yeon, 85, who was holding a candle while selling blankets to fellow protesters at a rally that drew hundreds of thousands of people, the sixth straight weekend of demonstrations calling for Park’s ouster.

“I never thought things would collapse like this,” she said.

Of course, Park Geun-hye inherited a more mature economy, lacking the dynamism of her father’s era, at a more challenging time for global growth.

South Korea is now the fastest aging society among developed countries, with an ultra-low birth rate. Many of the big businesses that drove an export boom subsidized by cheap government loans are struggling to adapt to the changing global landscape.

Public morale has deteriorated as Park’s administration lurched from crisis to crisis. In 2014, 304 people, mostly teenagers on a school trip, died in a ferry accident. That disaster took a toll on consumption, leisure and tourism. A year later, an outbreak of Middle Eastern Respiratory syndrome sapped consumer spending and business activities.

Park’s troubles have sharpened doubts over close ties between politicians and big, family-controlled businesses, known as chaebol.

Local media say prosecutors are looking into whether 53 businesses that donated funds to non-profit foundations controlled by Choi received favours in return. Prosecutors also have raided Samsung and the nation’s pension fund, reportedly scrutinizing its decision to back a 2015 merger of two Samsung companies.

“She gave the chaebol what they wanted,” Kim Jae-kyun, a 51-year-old factory employee disgruntled over labour and wage reforms that he says have helped big industry at the expense of ordinary workers.

“My wages haven’t gone up and I’m worried my children won’t be able to find jobs when they graduate,” Kim said during a recent demonstration.

Once the current political crisis passes, what will remain is the hard work of charting a future course for the economy.

The country’s largest shipping line recently went bankrupt, while its biggest shipbuilder is undergoing a restructuring. The recent slowdown in China, the country’s biggest export market, has been a further drag on growth.

Park has managed to boost growth in the short-term by increased government spending and stimulating construction and property development.

But the 2.5 per cent growth rate last year came at the cost of an unsustainable rise in household debt. And efforts to counter inequality by promoting inclusive growth and restructuring the labour market and the public sector provoked huge backlashes.

Other policy initiatives like the “creativity economy” policy of promoting entrepreneurship likewise have made little headway, said Kim Sang-jo, executive director of a non-governmental business watchdog, Solidarity for Economic Reform.

Meanwhile, “The competitiveness of key industries appears to have collapsed,” Kim said. “South Korea’s economy is in a crisis like a frog in slow boiling water.”