IS newly inaugurated South Korean President Park Geun Hye backtracking on her election promise to crack down on the nation’s chaebols, the family-owned business conglomerates?

Last month, just days before taking office as the country’s first female president, her incoming government laid out a detailed agenda that somehow managed to avoid any direct reference to “economic democratisation”. The term is commonly used in South Korea to refer to efforts to help small and medium-sized enterprises (SMEs) flourish.

The chaebols that dominate the economy are often accused of abusing their near monopolistic power to set market prices and prevent SMEs from growing. Officials have since claimed that, even though the term was not used, many of the specific policies outlined in government plans were actually part of its economic democratisation agenda.

But the absence of the term nevertheless prompted speculation that the incoming president would set aside her determination to rein in the chaebols and place greater priority on stimulating economic growth in the face of the poor economic outlook.

South Korea’s economy grew by just 2 per cent last year, the lowest in three years. Late last year, the government of president Lee Myung Bak slashed the growth outlook for 2013 from 4 per cent to 3 per cent.

During last year’s election campaign, the need for a fairer division of wealth was expressed by both sides of the political divide. But, as observers have since pointed out, Ms Park advocated the need for reform in far less aggressive terms than her main opponent, the left-leaning Mr Moon Jae In. Ms Park was supported by the ruling conservative Saenuri Party.

The new government’s official economic agenda places emphasis on a job-oriented creative economy and says that the government wants to establish what it calls a principled market economy.

The feared economic slowdown this year is largely premised on the expectation that exports will suffer as a result of a decline in competitiveness as Japan’s currency weakens. Japan and South Korea compete directly in many overseas markets, particularly in the automotive and electronics industries. The tourist industry will also be affected as Japanese will be discouraged from visiting South Korea.

Other drags on economic growth include a continued slump in the housing market and high levels of household debt.

Yet those who believe that Ms Park will go easy on the chaebols in order to focus on stimulating the economy may well be mistaken.

For one thing, South Korea’s economic problems are not as bad as they seem. Thanks to stronger exports, the current account surplus hit a record high in January – US$6.52 billion (S$8.1 billion), according to official statistics. This was the highest since the central bank started keeping records in January 1980.

A recent report by Moody’s Investors Service points out that while a decline in the Japanese yen this year may have a short-term negative impact on the South Korean economy, the long-term fundamentals remain positive.
Moody’s senior vice-president Thomas Byrne said South Korean companies now compete on quality and brand, not just price. They also have several advantages over their Japanese competitors, including better market access as a result of a large number of free trade agreements.

Meanwhile, a surge in the number of Chinese tourists has boosted the sales of retail stores. Data from the Korea National Tourism Organisation, the state-run tourism agency, shows 2.84 million Chinese tourists visited the country last year, up 27.5 per cent from the previous year.

The boom, largely the result of a rise in disposable incomes among middle-class Chinese, has also been fuelled by the popularity in China of Korean pop culture. Yet another factor has been the territorial dispute between Tokyo and Beijing that has encouraged Chinese tourists to avoid Japan.

Central bank data shows consumer confidence remains surprisingly strong. The Composite Consumer Sentiment Index was 102 last month, the highest since May last year. A reading above 100 means optimists outnumber pessimists.

In other words, Ms Park may yet feel she has good reason to ignore the economic pessimists and push ahead with her election promises.

Indeed, immediately after being sworn in as President on Feb 25, she delivered a speech that hinted strongly that she fully intended to keep the nation’s chaebols on a tighter leash. “By rooting out various unfair practices and rectifying the misguided habits of the past which have frustrated small business owners... we will provide active support to ensure that everyone can live up to his fullest potential,” she said.

Ms Park has a reputation for taking election promises seriously. In 2010, she successfully prevented her predecessor, Mr Lee, from cancelling a plan to establish a new national centre of administration at Sejong City. Ms Park argued that the plan was a promise made to people.

Those who assume that President Park will abandon plans for economic reform and focus instead on a perceived need to stimulate economic growth could be in for a surprise.

(C) Singapore Press Holdings Limited