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 But while "Choinomics" is proving an effective quick fix, lifting
markets and giving an unpopular government a boost, it falls short
thus far of a full-fledged manifesto similar to the "Abenomics"
launched by Japanese Prime Minister Shinzo Abe in late 2012 to shake
his country from its economic torpor.
Economists say bolder measures to reform structural weaknesses are
needed to head-off what Choi warns is a serious threat that Asia's
fourth-largest economy could slide into Japan-style stagnation.
The veteran lawmaker's plan combines extra spending with an easing
of mortgage curbs to boost the property market, a proposal to tax
excess corporate cash reserves, and not-so-subtle pressure on the
central bank to ease interest rates.
It has already helped dispel some of the gloom hanging over the
economy since the April 16 sinking of the Sewol ferry that killed
more than 300 people.
Since Choi's appointment, the benchmark stock index has risen 4
percent in anticipation of higher dividends, while bond prices are
also up, reflecting rate cut bets. Some economists are also revising
up their growth forecasts.
"He's certainly made a splash since he came into office," said
Frederic Neumann, co-head of Asian economic research at HSBC in Hong
Kong.
That is a relief for President Park Geun-hye, who brought in the
59-year-old close ally and ruling party floor leader in a cabinet
reshuffle after the ferry tragedy.
Still missing, though, are long-term solutions to South Korea's
problems: over reliance on manufacturing and exports at the expense
of consumption and services, a rapidly aging population,
inefficiencies in the labor and housing markets, high household
debt, and the often-stifling dominance of giant conglomerates such
as Hyundai, Samsung or LG, known as chaebol.
Park in February spoke of plans to rebalance the economy, but like
many before has made little headway with follow-up.
Choi's tax plan, due to be detailed on Aug. 6, is the most ambitious
part of his package. It aims to boost investment, wages and dividend
payouts in order to stimulate consumption.
In theory, it would go some way towards promised rebalancing. The
question is whether it can work.
Park Ju-gun, co-president of corporate watchdog CEO Score, said he
doubted taxing reserves will force businesses to spend more: "There
are many ways they can avoid doing this."
Some economists also point out that Choi's $40 billion stimulus,
equivalent to 3 percent of the economy, is less than meets the eye.
Only about $11 billion of that represented by fiscal spending and
much of the rest in the form of financial support from the central
bank and state banks that may have limited impact on growth.
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ANZ Banking Group, however, considered the stimulus boost and
expected monetary easing sufficient to raise its 2014 South Korea
growth forecast to 3.6 percent from 3.4 percent and next year's to
3.7 percent from 3.4 percent.
MORE TO COME?
Choi - nicknamed "the Bull" for his hard-charging style - is
promising more, including an expansionary budget next year and
possibly beyond.
Further potential steps include relaxing construction regulations,
incentives for companies to hire part-time workers, and encouraging
investment in services and smaller enterprises.
Some commentators credit "Choinomics" for the ruling party's strong
showing in last week's by-elections, where it won 11 of 15 contested
seats, strengthening its majority and making it easier for Choi and
Park to push further reforms.
"The opposition will be more receptive to the government's push to
boost domestic demand," said JPMorgan economist Lim Ji-won.
However, Choi is unlikely to pursue policies that would inflict much
pain on chaebol, which power South Korea's exports and back Park's
conservative Saenuri Party.
Choi has already sought to manage expectations.
"Regulatory reform cannot solve everything in a day and there are
limits, but we will strive to have money flowing into the markets
from investment and reform," he told parliament soon after taking
office.
Critics also say Choi's steps to boost the property market risk
undermining efforts to rein in high consumer debt for the sake of a
short-term boost that may not even materialize.
"Stocks will rise even at the thought of dividends, even if they do
not materialize. But the real estate market is depressed and will be
difficult to engage," said Oh Suk-tae, economist at Societe Generale
in Seoul.
(Editing by Tomasz Janowski)
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