Asia's fourth-largest economy is gearing up for a sustained push to boost growth.
Park Geun Hye, South Korea's president-elect, yesterday appointed Hyun Oh Seok, a contributor to The National's business comment pages, as the finance minister as she installs a new government that also aims to tackle a strengthening currency.
Mr Hyun, currently the head of the state research centre the Korea development institute (KDI), will also become the deputy prime minister for economy, a signal Ms Park will make spurring growth in Asia's fourth-biggest economy a top priority.
Kim Yong Jun, the head of Ms Park's transition team, announced ministerial appointments yesterday in Seoul. "I feel heavy responsibility as economic conditions are tough," Mr Hyun said after his nomination.
He said a "tough task" lies ahead for the new government to achieve its goal of building up the middle class by boosting both growth and welfare, although he declined to elaborate on policy details.
South Korea's incoming leadership, set to take office on February 25, will oversee an economy that last year expanded at its slowest pace since 2009, when growth slumped during the global financial crisis. Bahk Jae Wan, the outgoing finance minister, said last month officials might do more to ease currency volatility as the rising won sapped export growth amid Japanese policies that were weakening the yen.
"The short-term challenge is how to secure a rapid economic recovery," Mr Hyun said yesterday, without commenting on the currency.
"The long-term challenge is how to coordinate between growth and welfare and improve our growth potential."
Appointees are subject to a parliamentary hearing at the national assembly, where Ms Park's New Frontier Party has a majority.
"The new finance minister, now elevated to deputy prime minister, will have unusually strong power, probably unseen since Park Chung Hee's regime, encompassing all economic policies from budget to international trade," said Lee Sung Kwon, an economist at Shinhan Investment in Seoul. He was referring to the incoming president's father, who oversaw South Korea's economic rise through the growth of car making, steel and shipping until his assassination in 1979.
"We're facing another currency war, which requires a financial chief who can really navigate the tough waters for South Korea," Mr Lee said.
Mr Hyun has a PhD in economics from the University of Pennsylvania and worked for the World Bank and South Korea's finance ministry before becoming the head of the nation's top research body in 2009, according to KDI's website. He is a long-time policy adviser to the Bank of Korea and the government. One of his predecessors at KDI was the central bank governor Kim Choong Soo.
Becoming the finance minister and the deputy prime minister for economy "is the greatest responsibility of my career, especially at a time when the global economy is in such a difficult situation", Mr Hyun said. "I will contribute to the new Park government's commitment to revive the middle class through the virtuous circle of growth and welfare."
His appointment comes after Mr Bahk resisted pressure from policymakers last year for additional spending to support growth, submitting a budget for this year that targets a fiscal deficit amounting to 0.3 per cent of GDP, the lowest in six years.
"The new finance chief will face pressure to introduce a supplementary budget as fiscal stimulus is set to play a bigger role in Korea's recovery," said Ronald Man, an economist at HSBC in Hong Kong.
Ms Park's government has allocated 72 per cent of the budget in the first half of the year to aid recovery. The new president also promised to increase spending on welfare and unveil an 18 trillion won (Dh60.97bn) fund to help avert loan defaults.
South Korea's economy expanded 2 per cent last year, the slowest pace since annual growth fell to 0.3 per cent in 2009. GDP increased 1.5 per cent last quarter from a year earlier, less than analysts forecast, as a 23 per cent gain in the won against the yen over the past six months threatens to restrain exports this year.
Bank of Korea reduced its projection for growth this year to 2.8 per cent from 3.2 per cent on January 11 and kept interest rates on hold at 2.75 per cent on Thursday.
* with Bloomberg News
