South Korea’s economy doesn’t seem to have gotten the memo that Covid-19 remains an existential threat.
Even as the Omicron variant does its worst to global growth, Asia’s fourth-biggest economy is showing the developed world how it’s done. Seoul ended 2021 not just with its 13th consecutive annual trade surplus—but record export earnings on all-time high trade volumes.
It fits with Korea Development Institute’s 4% growth forecast this year. Ditto for the Organization for Economic Cooperation and Development, which had given President Moon Jae-in’s nation the benefit of the doubt. And wisely so.
Korea does indeed have a 25-year track record of confounding the skeptics. After the 1997 Asian crisis, Korea staged the region’s most impressive comeback. In 2008 and 2013, Seoul avoided the worst of Wall Street’s crash and the Federal Reserve “taper tantrum.”
Now, Korea is proving that only by addressing the pandemic competently and nimbly can a top-12 economy thrive.
To be sure, Korea is experiencing a Covid-19 infection surge along with virtually everywhere else. But having outperformed in vaccinations, social distancing and mitigation techniques, Korea has a proven track record of handling whatever the pandemic throws its way better than peers.
Korea, too, entered the Covid era on firmer footing than most major economies. Moon’s government didn’t have to open its wallet as aggressively as Japan or the U.S. Nor did the Bank of Korea ever cut interest rates to zero or go down the quantitative easing rabbit hole.
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In fact, BOK Governor Lee Ju-yeol has been hiking rates. His team tightened monetary policy in August and November, judging that growth was solid enough to withstand a closing of the liquidity spigot.
Yet Korean policymakers have their work cut out to maintain economic growth in the 4% range. Complicating things, the nation of 52 million people is gearing up for a change of leadership following a March 9 election.
Korean presidents only serve one term, meaning Moon will soon hand the reins to a new government. Amid the distraction, the BOK and officials at the Ministry of Finance will need to act assertively and creatively to safeguard growth.
There’s some luck involved in Korea’s 2021. It boasts the globe’s top memory chip manufacturers like Samsung Electronics and SK Hynix. They and peers ended up benefiting from Covid-19 as work-from-home edicts increased demand for electronics. And for a surge in demand for more capacity in data centers.
Yet the last two years were a lost period for the corporate reform needed to recalibrate growth engines. For 20 years now, a succession of Korean leaders promised to reduce the power of family-owned conglomerates that tower over the economy.
These so-called chaebols hog up much of the innovative oxygen, leaving little space for startups to thrive. This arrangement keeps Korea too reliant on exports while stymying productivity and economic disruption needed to move the nation upmarket.
For example, Moon’s predecessor, Park Geun-hye, took office in 2013 promising to build a more “creative economy” and to “democratize” the benefits of growth. She talked big about taxing excessive corporate profits better used upping wages. And to alter tax incentives to support startups.
Instead, Park got co-opted by a chaebol system she promised to curb. In 2017, Park was arrested and impeached amid a bribery scandal that put the head of the biggest chaebol of all—Samsung—in jail, too.
Lee Jae-yong has been in and out of prison since 2017. Park was recently pardoned by Moon in the spirit of national unity.
When Moon took over in 2017, he went even further with plans to retool the economy. His initial “trickle-up growth” strategy included hikes in the minimum wage, tax increases on the wealthy, policies to catalyze a startup boom and efforts to attack corporate corruption.
Despite the lack of structural change, the BOK managed to keep the economy above board—with a powerful assist from the export sector. In 2021, overseas shipments hit a record high $644.54 billion, a 25.8% year-on-year gain.
As Omicron does its worst, Korea might not be able to rely on the export engine much longer. Even so, the nation is teaching an Economics 101 course for the Covid age.