South Korea Faces Economic Slowing and a Troublesome North

In February, Park Geun-hye was inaugurated as president of South Korea, becoming the country's first female head of government and gaining another five years of control for the conservative Saenuri (New Frontier) Party.

As president, Park must manage the consequences of a slowing economy, a well-educated and engaged citizenry with high expectations and troublesome relations with North Korea. The issues that dominated the election, and remain at the center of public conversation, are corporate regulation and social welfare, which have come together under the banner of "economic Democratization."

Many South Koreans claim that it has become too difficult to compete for the well-paying secure jobs at the country's conglomerates and for spaces at the prestigious schools that give young people a better chance of getting those jobs.

South Korea is aging fast and many say they need more help caring for elderly parents while also raising children. Life is tough and South Koreans want the government to make it easier.

Park campaigned for president promising to level the economic playing field and address the country's rising inequality. The main thrust of her economic-democratization policy is tighter control of South Korea's large conglomerates, which fueled the country's economic rise but have been said to wield too much clout within the economy.

The main tenets of economic democratization are giving SMEs the rights to arbitration and consultation on unit prices, imposing stricter penalties for corporate malfeasance by conglomerates, forcing conglomerates to give permanent jobs to many of their temporary workers and giving greater political independence to the watchdog Fair Trade Commission.

The Fair Trade Act is also expected to be amended to add measures meant to prevent conglomerates from funneling work directly to their subsidiaries.

The idea of economic democratization is popular. According to a poll conducted by Nielsen in mid-April, seven out of 10 South Koreans endorsed the policy. The question now is what Park will follow through with and how effective those measures will be. The main opposition to economic democratization comes from big business, which claims the policies are intrusive and will be ultimately harmful to the economy. This early in Park's term, it remains to be seen whether or not they will be carried out.

Scandals

Park's attempts to form a government and execute her policies have been hindered by scandal and public outcry over her appointments. Defense Minister nominee, Kim Byung-kwan, stepped down after being criticized for his history of close dealings with arms companies. The Prime Minister nominee, Kim Yongjoon, bowed out due to controversy over his history of shady real-estate deals.

In May, on Park's first overseas trip to the US as president, her spokesperson, Yoon Chang-jung, was fired after he was alleged to have sexually assaulted a young Korean-American woman employed by the South Korean embassy in Washington specifically for Park's visit. These types of episodes are common in South Korean politics: kerfuffles over alleged corruption and misbehavior; prominent figures hanging their heads and scurrying off with their tails between their legs. It all makes for great theatre but it also impedes the functioning of the government.

Throughout her career Park has been an agile politician, able to successfully ride – and sometimes control – the waves of the country's politics. She has survived scandals herself, and was even slashed across the face by a knife-wielding assailant in 2006.

In the spring of 2012, South Korea's left appeared headed for a resurgence. Public displeasure with the Lee Myung-bak government had come to a head and the mood for change was ripe. Before parliamentary elections in April 2012, Park's party, then called the Grand National Party, appointed her to the party's leadership due to the consensus that she was their only hope of not getting trounced in the election. Park successfully rebranded the party, changed its name to the Saenuri Party and incorporated enough of the public's calls for welfare and corporate regulation to win over swing voters without alienating the party's conservative base.

Saenuri won 152 out of 300 seats, giving it a parliamentary majority. The victory was a surprise, with most pundits having predicted a minority victory for the opposition Democratic United Party. The election results indicated that South Korean politics remain conservative at heart – at least outside of the capital, Seoul, where Saenuri won just 16 of 48 seats. About a third of the South Korean population resides in the greater Seoul area.

This carried over to last December's presidential election, where the results were very similar, with Park winning comfortably over the Democratic United Party candidate, Moon Jae-in. In both contests, the liberal opposition proved unable to capitalize on perceptions of growing inequality.

The liberal side has still not recovered from the backlash of 10 years of largely ineffective rule under presidents Kim Dae-jung and Roh Moohyun (1998-2008). Kim and Roh were both perceived to have mishandled the economy and their "Sunshine Policy" of unconditional aid to North Korea was widely considered a waste of money that failed to bring about substantial changes in the North.

Background and regional divide

Despite its history of dictatorship, South Korea is a lively democracy with an engaged citizenry. When something goes wrong, or when citizens feel their elected leaders have come up short, the electorate is outspoken in demanding more, or better. For their own political survival, politicians must respond in kind. This creates a brisk pace of change in the country's politics, a sense that no ideological current is able to dominate for long without showing results.

Politically, the country is still roughly split along the lines of those who benefited from the Japanese occupation (1910-1945), and those who were harmed by it. That split is still roughly distributed geographically, with the liberals in Jeolla Province in the southeast and conservatives in Gyeongsang Province in the southwest. Gangwon and Chungcheong provinces (northeast and south of Seoul, respectively) have of late swung in favor of the ruling party, possibly due to Park's personal popularity in those regions. Chungcheong is a swing province with no predictable voting pattern.

South Korea's economic boom really got going in 1965 when the Treaty on Basic Relations with Japan was signed. The agreement established diplomatic relations between Seoul and Tokyo and provided US$800 million in grants and soft loans as redress for Japan's colonial-era misdeeds. The funds were granted on the stipulation that no individual South Korean or groups would file additional claims for compensation.

Then-president Park Chung-hee, the current president's father, used the money to establish the public infrastructure and help the conglomerates that allowed South Korea to rise from poverty to wealth faster than any other country ever has and to become the first country to go from being a recipient to a donor of foreign aid.

Park allocated the money mostly to Gyeongsang province, his home region and support base, and the area from which Park Geun-hye was elected as a lawmaker in the 2012 parliamentary elections.

With the exception of fishing and agriculture, left-leaning Jeolla Province was largely neglected. This disparity still colors South Korean politics and society today.

Relations with North Korea

Early in the current president's term, domestic concerns have been overshadowed by some exceptionally high tensions with North Korea. On February 12, less than two weeks before Park's inauguration, North Korea went ahead with its third nuclear test. The resultant outcry made it politically impossible for Park to follow through with campaign promises to engage with North Korea.

During her campaign, she had said that as president she would work to mend ties with Pyongyang through a policy framework she called "trustpolitik," which was meant to develop a mutually beneficial partnership and take incremental steps toward eventual reunification.

South Koreans are generally stoic in the face of the North Korean threat, but this time there was some genuine concern that the situation could get out of hand. The spring months saw some serious tensions, highlighted by a threat of a pre-emptive nuclear strike by North Korea and the shutdown of the Kaesong Industrial Complex, a joint venture between the North and South.

The complex brings together South Korean manufacturers with cheap labor in the North. Some 53,000 North Koreans had been employed there and it brought in about US$80 million for North Korea in 2012, according to South Korea's Ministry of Unification.

Tensions appear to have cooled without the military conflict many had feared. But even during times of relative calm, North Korea's persistent stubbornness and the composition of Park's government make it unlikely that there will be a sustained improvement in inter-Korean relations.

Key positions in Park's government are held by figures with a penchant for hard-line stances on North Korea. Foreign Minister Yun Byung-se is known for insisting on denuclearization as a precondition for any dialogue with North Korea. Defense Minister Kim Kwan-jin is a holdover from the previous regime. Kim took over the defense portfolio after his predecessor, Kim Tae-young, resigned in the wake of the North's 2010 shelling of Yeonpyeong Island after being criticized for not ordering a more forceful military response during the battle with North Korea. The South Korean public at the time felt that their country had lost face after two marines and two civilians were killed in the battle.

Kim Kwan-jin took power promising a forceful reply to any future North Korean military incursion. This determination to not be embarrassed again has fed tensions on the peninsula and led many to fear that a rogue North Korean commander could set off a war by provoking the South into overreacting.

Park has said that she will not tolerate a nuclear armed North Korea, while the North appears more intent than ever on continuing to pursue its nuclear program with the goal of constructing a warhead that can be mounted on a missile capable of reaching the continental United States.

The North Korean leader, Kim Jong-un, believed to be 29 or 30, continues to reshuffle the powerful military in an apparent attempt to consolidate his control.

When he came to power in late 2011, many analysts speculated that his youth, overseas experience and purportedly Western tastes and hobbies would make him likely to enact China-style reforms and bring North Korea out of isolation. After about a year in power, that wishful thinking has all but dissipated and it's overwhelmingly apparent that Kim plans to continue the family tradition of lording it over a repressive state that refuses to enter the 21st century.

(Asia Sentinel Correspondent Steven Borowiec wrote this for the Hong Kong-based financial analysis firm Asianomics)