(Bloomberg) -- South Korea’s economy is bound by too many regulations that are stifling growth and unwinding them could fuel an expansion exceeding levels suggested by the current government, according to a senior economic adviser to presidential candidate Ahn Cheol-soo.
Economic growth, which has been stuck around mid-2 percent recently, should be driven by the private sector and not by the government, Byeon Yang-ho, a former finance ministry official and current board member of venture capital firm Vogo Fund, said in an interview last week.
Byeon, who joined Ahn’s camp in April, said he and Ahn shared similar views on “changing the entire economic system,” which will involve casting off government-led growth initiatives that worked in the 1960s and 1970s but are now seen as being ineffective.
Byeon’s comments about ways to drive growth contrasts sharply with Ahn’s rival and front-runner Moon Jae-in, who recently pledged to implement a 10 trillion won ($8.8 billion) extra budget that would create 810,000 public sector jobs. In a Korea Gallup poll Friday, Ahn trailed Moon with 24 percent support compared to Moon’s 40 percent.
“An economic stimulus is nothing new and doesn’t solve the fundamental problem,” Byeon said. “Fiscal policies should correspond to the amount of tax revenue, which is rising.”
Byeon said economic reforms should also include setting stricter ground rules for fair competition and beefing up the social safety net for the poor. Regulations intended to protect the society’s vulnerable should do more than just provide psychological comfort, Byeon said.
Byeon agreed with Moon’s aides that one of the biggest risks to Korea’s economy is household debt, which reached a record 1,344.3 trillion won at the end of 2016. Some of the ways to curtail debt growth would be to implement policies encouraging the sale and leaseback of homes, a common procedure of insolvent companies, and turning old apartments, instead of new ones, into public rental housing, Byeon said.
Under the sale-and-leaseback program, banks would sell the home of a mortgage defaulter to the government, which would then lease it back to the debtor.
On Wednesday, Moon’s top economic adviser Kim Sang-jo said one way to curb increasing debt would be for the government to coordinate with the central bank to send a signal on the direction of monetary policy, which is likely to be tightening, rather than easing. This signal would prompt households to gradually cut back on their debt, Kim said.
Byeon declined to comment on Kim’s proposal, saying monetary policy should be set by the central bank, not the government.
Of many economic policies he has in mind, Byeon said he is particularly pushing for Ahn to create a more transparent and diverse panel of advisers, an idea he said was inspired by an advisory conference led by former Japanese Prime Minister Junichiro Koizumi in the early 2000s.
“If you look at the current decision-making structure, there is too much hierarchy between the president and the ministers, and in that manner, we cannot deal with complex problems,” said Byeon.
In Byeon’s mind, specialists from the private sector, lawmakers and economic-related ministers would meet with the president once a week and the details of the discussions would be disclosed to the public within three days.
Byeon also called for the need to make government-run financial entities such as the Industrial Bank of Korea more independent. The current system gives the president too much authority over financial organizations, he said. The government should only intervene to check whether they are abiding by the law and maintaining financial solvency.