Pump Priming Policies Hit Snag

The Lee Myung-bak administration’s major policies aimed at reviving the economy have hit a snag due to differences among ministries and between the administration and the ruling Grand National Party.

The atmosphere is quite different from last year`s, when the administration set implementation deadlines for its 100 major policies with an emphasis on speed.

A case in point is measures to advance the services industry. The government planned to announce measures to allow for-profit hospitals and educational institutions last month, then indefinitely postponed them.

The Strategy and Finance Ministry said allowing for-profit medical and educational institutions will enhance the competitiveness of the two sectors as well as help boost domestic demand and create jobs. It failed, however, to narrow differences with the Education, Science and Technology Ministry and the Health, Welfare and Family Affairs Ministry.

The government has also made little progress in the privatization of state-funded corporations, with just 38 of 319 state-run companies spun off. Since 26 of them have been designated for privatization, the administration plans to privatize just 12 more.

A bill on merging the Korea Land Corp. and the Korea Housing Corp. was introduced to the National Assembly in October last year. But it is still unclear whether parliament will pass the bill.

The government is confused over the planned revision of a law to prevent mass layoffs of temporary workers. The Labor Ministry is under fire for causing confusion over the amendment. The ministry wants lawmakers to propose a revision bill but has introduced its own after facing resistance from the ruling party.

Measures to boost the slumping economy amid the global financial crisis are also backfiring. The government since late last year has discussed lifting regulations on property transactions in highly speculative areas in southern Seoul, but has failed to reach a conclusion among ministries.

The government announced regressive application of the proposed abolition of heavy taxes on capital gains by owners of multiple homes if the National Assembly passes the bill. The ruling party, however, has failed to reach a consensus on the bill, dampening the moribund property market that was showing signs of reviving.

The Knowledge Economy Ministry is trying to boost the auto industry by offering tax incentives to new car buyers. This, however, is seen as undermining public confidence in government policies. While Knowledge Economy Minister Lee Yoon-ho announced the tax cuts late last month, his ministry did not conclude detailed measures until Sunday. This served to hurt new car purchases and confuse consumers.

“At a time of such extreme uncertainty, the government should have strong confidence and commitment,” said Kwon Soon-woo, head of the macroeconomics department at Samsung Economic Research Institute.

peacechaos@donga.com