"No Structural Reforms in the Past Decade... Need to Devise Mid- to Long-Term Reform Strategy"

Gyeongsa-yeon Seminar on 'One Year of the Yoon Seok-yeol Government: Four Major Challenges and Solutions for the Korean Economy'

To address the challenges facing Korean society, including low birth rates and aging population, it was suggested that discussions on mid- to long-term structural reform strategies are a prerequisite.

At the seminar titled "One Year of the Yoon Suk-yeol Government: Four Major Challenges and Solutions for the Korean Economy," hosted by the Economic and Social Research Institute on the afternoon of the 4th, Kwon Nam-hoon, president of the Economic and Social Research Institute, diagnosed, "Over the past 30 years, the Korean economy has transitioned through periods of high growth and globalization to a mature economy, but the response has been insufficient," adding, "Necessary structural reforms have not been implemented in the last decade." He argued that structural reform strategies should be formulated based on the three major 'QOS criteria': quality of life, individual opportunity, and sustainability.

This seminar was held to evaluate the significance of the launch of the Yoon Suk-yeol government and its achievements over the past year, focusing on mid-career and emerging economists, and to discuss the challenges the Korean economy will face in the future.

Kim So-young, vice chairman of the Financial Services Commission, said in her congratulatory remarks, "Korea has become an economic powerhouse through industrialization and democratization, but the growth model we have built has reached its limits," adding, "The potential growth rate of our economy continues to decline and is currently at the 2% level, and due to the world's lowest total fertility rate and rapid aging, negative growth is expected." Vice Chairman Kim stated, "In particular, the Financial Services Commission has already decided to support New Growth 4.0 and the leap to becoming one of the top five export powers through policy fund supply worth 205 trillion won," and added, "In addition, measures such as strengthening the ESG disclosure system and actively expanding support for companies promoting green management are being introduced."

Pension Reform Essential for Future Generations... Need to Prevent New Financial Shocks

Experts on the day identified four problems facing the Korean economy: low birth rates and aging population, shrinking opportunities for future generations, the emergence of a new global economic order, and economic recession coupled with the three highs (high inflation, high interest rates, high exchange rates), and presented opinions on how to solve them.

Regarding the low birth rate issue, there was an urgent call to respond to the decline in the working population. Professor Min Se-jin of Dongguk University said, "The decrease in the working population causes problems such as labor shortages, contraction of asset markets, decline in national savings rate, economic growth slowdown, and increased fiscal burden," adding, "By 2058, 100 working-age people in Korea will have to support 100 young and elderly people." Professor Min suggested promoting investment in capital and technology combined with labor to increase the productivity of workers and simultaneously expanding female participation, preventing career interruptions, and reviewing immigration policies to enable more people to work. He also emphasized the need to accelerate the early social entry of the working population and discuss extending the retirement age.

Next, Jeon Byung-mok of the Korea Institute of Public Finance mentioned the need for pension reform that does not increase the burden on future generations. He said, "Calculating the future fiscal burden under the current welfare system shows that even if the national burden rate remains at the current level, national debt is likely to increase significantly, with the debt-to-GDP ratio rising from 49.2% in 2022 to 192.6% in 2070." He emphasized that to avoid social insurance deficits, additional increases in the national burden rate are inevitable, and a comprehensive approach to retirement preparation with government support for vulnerable groups is necessary.

Professor Park Yoon-soo of Sookmyung Women's University said that it is necessary to examine whether the labor market in our society provides opportunities for youth. He explained, "In Korea, wages are influenced more by how long one has worked at a large enterprise than by individual ability," adding, "From the perspective of equal opportunity, a flexible labor market where wages and job changes are determined by ability and performance is advantageous, but there are concerns that it may undermine wage and employment stability."

Professor Jeon Hyun-bae of Sogang University emphasized the need to improve productivity in the service sector to provide more future opportunities for youth. He also stressed the establishment of accountability in public education to guarantee basic academic skills and the strengthening of vocational education investment. Additionally, he mentioned the need for further development and incentives for financial products aimed at asset accumulation, such as the Youth Leap Account.

Professor Kim Hyun-wook of the KDI School of Public Policy and Management mentioned the need to prevent financial shocks amid the high-interest rate trend and asset price adjustments. Professor Kim said that the recent rapid weakening of the real economy recovery and contraction of corporate investment have intensified concerns about low growth, and it is time to prepare for new banking crises like the Silicon Valley Bank incident. He particularly noted that the financial and monetary policy, which has been quite tight over the past year, should reorganize supervisory standards such as capital adequacy, and fiscal policy should focus on restructuring expenditure with support for vulnerable groups.

In the subsequent panel discussion, Park No-uk, senior research fellow at the Korea Institute of Public Finance, emphasized the introduction of fiscal rules. He said, "The proportion of mandatory spending already exceeded 50% last year," adding, "Although normalization was promised, the fiscal structure is rigid and difficult to change easily." Park identified the introduction of fiscal rules, expenditure efficiency, diversification of funding sources, strengthening fiscal performance management systems, and establishment of mid- to long-term fiscal strategies as future tasks for the Yoon Suk-yeol government on its first anniversary.

Lee Seok-ho, senior research fellow at the Korea Institute of Finance, mentioned that expanding support for infertility treatment, supplementing public education to counter excessive private education, and supporting retirement preparation through asset formation projects would be direct and indirect aids to solving the low birth rate problem. Professor Shin Ja-eun of the KDI School of Public Policy and Management said that ways to achieve social consensus beyond conflicts and institutional limitations must be sought.

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