By Troy Stangarone

As the United States and South Korea begin celebrations of 60 years of the U.S.-Korea alliance, President Park Geun-hye arrives in Washington, DC for her first summit meeting with President Barack Obama at a time of heightened tensions on the Korean peninsula. In recent months, North Korea has dominated the news, and U.S.-Korea relations, as it has conducted a third nuclear test, withdrawn from the Korean War armistice, effectively shut down the Kaesong Industrial Complex, and increased its rhetoric to new levels.  While addressing the challenges of North Korea will be central to the discussions between Park and Obama, it is not the only issues for the two leaders to discuss.

With relations between the United States and South Korea are at an all-time high, Park and Obama will discuss ways to continue the close cooperation the United States and South Korea have enjoyed in recent years. In the run up to this week’s meetings, both sides addressed one of the major issues confronting U.S.-Korea relations by agreeing to extend the two sides’ civilian nuclear cooperation agreement for two years. With the Park government and the second Obama administration only slowly coming into shape, buying time to further discuss issues such as South Korea’s request to reprocess spent nuclear fuel represents a prudent first step.

On the economic front, both sides will have plenty to discuss. With the KORUS FTA in place, both countries will continue to discuss ways to ensure that the agreement is fully utilized by both sides. To this end, Park is arriving in Washington with the largest business delegation of any prior Korean president to continue expanding U.S.-Korea economic cooperation. At the same time, Park will likely raise Korean concerns over the KORUS FTA’s dispute settlement mechanism and continue to press for Korea to receive an increase in professional visa’s to help spur additional economic cooperation.  While the United States will seek South Korea’s participation in the growing Trans-Pacific Partnership free trade talks.

Also on the agenda will be the future role of the alliance. In 2009, the United States and South Korea released a Joint Vision statement outlining areas of regional and global cooperation. With the new administration in Seoul, discussions will center on how to further strengthen cooperation and the Park administration’s proposal of a Seoul Process to build trust and cooperation in Northeast Asia.

However, North Korea will present the most immediate challenge. Recent weeks have seen both the United States and South Korea transition from a period of deterring North Korea’s provocations to opening the door for further engagement with Pyongyang. Discussions will likely center on South Korea’s proposals for engaging North Korea in a trust building process and how best the United States can support South Korea’s leading role in engaging Pyongyang.

While summit meetings are often action forcing events, the first meeting is often more about developing a strong working relationship and setting a course for the years ahead. As Obama and Park hold their first formal meeting, they will look to build upon the strong working relationship that has existed between the United States and Korea in recent years and chart a course for the years ahead.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade for the Korea Economic Institute of America.

Photos from Cheong Wa Dae and White House.

By Troy Stangarone

As Park Geun-hye takes office as South Korea’s first female president, she comes into power at a time of contradictions and challenges. The lives of South Koreans have perhaps never been better. The nation is wealthier than it has ever been. Unemployment is low despite continuing troubles in many of South Korea’s export markets and chaebols such as Hyundai and Samsung are arguably at the peak of their commercial and creative success. Internationally, Seoul finds itself with a growing level of influence in international issues.

However, underneath all of the success are a series of challenges that have grown out of South Korea’s meteoric economic rise. Decades of economic growth and migration to the cities have begun to break down some of South Korea’s traditional social structures. The result of this transition has been an increasing number of the elderly without traditional family support or an adequate social safety net. The young, notwithstanding high levels of education, often have difficulty finding meaningful work in an increasingly competitive society. Despite their contribution to South Korea’s economic success, there is growing dissatisfaction with the chaebols and their impact on the potential success of small and medium sized business. Years of declining birthrates mean that in the coming decades South Korea will face a rapidly aging society, in spite of being a relatively young society today. Internationally, North Korea has perhaps never been as belligerent as it is today outside of the Korean War.

This is the context in which Park Geun-hye will take power. A society at a relatively affluent level, but with a series of challenges to meet to ensure that affluence remains for the generations to come. While the Park administration will deal with many issues during its five year term, there are five relatively interconnected domestic and international issues that will have a significant influence on the potential success of her administration. They include:

Reviving the Economy – Park was elected in large part to revive a slowing economy. With economy having slowed to its lowest rate of growth since the 2008 financial crisis at 2.1 percent, South Koreans were looking for answers to address a growing state of inequality within the economy and sagging job opportunities.

Park hopes to steer the economy back to health and focus more on the quality of growth rather than the quantity. In line with that philosophy, she is the first South Korean president to decline to set a target for economic growth. She has also called for a shift in South Korea’s economic philosophy from the mass production that served it so well during its economic development to an economy driven more by creativity and innovation. With this in mind, she has called for increased job creation through innovation and science and technology, while at the same time promising to help revive economic growth among small and medium enterprises. Designed properly, both policies could create new outlets for the growth and job creation needed to address two challenges within South Korea’s economy – youth unemployment and an underdeveloped services sector.

However, reviving the economy will not be easy and is to a degree out of Park’s control. With exports accounting for more than 50 percent of South Korea’s GDP, economic slowdowns in the European Union, the United States, and China have all created a drag on growth.  As a result, the estimates for South Korea’s growth rate in 2013 have already been revised down from 4.3 percent to 3.0 percent. Over time, South Korea needs to rebalance its economy towards domestic consumption, but high levels of household debt will likely inhibit efforts to boost growth through increased domestic consumption.

Over the course of Park’s term, the administration will face additional challenges in reviving the economy. As South Korea’s economy matures, growth rates will inevitably decline. South Korea has already seen its potential economic growth rate fall from 6.8 percent in the mid-1990s to 3.6 percent today. South Korea also faces a maturing population. By the end of Park’s term in office, the size of South Korea’s potential workforce will have begun to decline. As South Korea’s workforce ages and its size declines, the economy will need to shift to a more service oriented economy to care for the elderly, while finding additional ways to increase productivity in order to maintain economic growth with a declining population.

Improving the Social Safety Net – While South Korea’s per capita income is closing in on the OECD average, society’s affluence has not always spread to South Korea’s less fortunate. Social spending in South Korea is about half of the level of the OECD average, and slightly less than in the United States which is known for its less generous social safety net. Economic inequality has been increasing in recent years and the most up to date data indicates that there has been a rise in poverty with 15 percent of Koreans living off less than half of the median income as of 2008.

In a society where the family traditional took care of the elderly, the shift away from traditional family structures has been wrenching. South Korea has the highest rate of seniors living in poverty with nearly 1 in 2 seniors living in relative poverty. The number of Koreans over the age of 65 committing suicide has quadrupled in recent years, as many elderly find themselves without family support and ineligible for government support.

To address these and other social challenges, Park has proposed increasing spending on social welfare issues. Because the current pension system was only put in place the late 1980s, many elderly Koreans are not eligible. Park has proposed making all elderly 65 and over eligible for the government’s pension program and raising the current benefit from 97,000 won to 200,000 won. In order to make the plan financially feasible, consideration has been given to excluding seniors who are already eligible for more generous plans. To pay for the plan, Park hopes bring the informal economy into the mainstream and raise additional revenue by taxing aspects of the informal economy, as well as finding waste in current government expenditures to cover the costs.

Gender Inequality – As South Korea’s working age population declines, one potential avenue for addressing the decline in South Korea’s labor pool is to tap into women who are currently underutilized in the economy. Despite similar or better educational attainment levels to men, the percentage of women in the workforce has not changed much in the last two decades. Only 10 percent of women are in managerial positions, in contrast to the OECD average of a third, and South Korea has the highest gender pay gap among OECD countries at 39 percent.

Data from the World Economic Forum’s Global Gender Gap Report is less encouraging. South Korea has the largest gender gap in the developed world, ranking 108 out of 135 countries. South Korea does especially poorly in the World Economic Forum’s rankings for economic participation and opportunity (ranking 116), and relatively better in the areas of educational attainment, health and survival, and political empowerment.

With the election of Park Geun-hye as South Korea’s first female president there has been some speculation that this could be a turning point for the role of women in South Korean society. However, some are skeptical that Park’s election will make much of a difference. Throughout her career, Park has not traditionally embraced women’s issues and some see her as model not of a successful women but rather the heir of a successful politician. For her part, Park has never stressed her gender in her political life.

However, that does not mean that Park cannot play a meaningful role in addressing gender inequality in South Korea. Park is a potential role model for women, regardless of her father’s role in her success.

Recently, Park has begun to call for more measures to address the needs of women. She has pledged to provide incentives for employers to increase the number of women in management and to increase child care subsidies for single family homes. Her first budget includes funding for free child care for children under the age of five. She has proposed introducing a quota requiring 30 percent of all positions at public institutions and educational jobs to be filled by women, while suggesting that an institute be created to train future women leaders.

If Park is successful in implementing some of these policies, they will create greater opportunities for women. And while Korean society will not change overnight, finding ways to close the gender gap will also help to address South Korea’s long term demographic and economic challenges.

Addressing Relations with China and Japan – South Korea has complex historic and diplomatic ties with China and Japan – two of its largest economic partners. In the last 20 years, economic ties with China have grown at an astounding rate, with trade jumping from a paltry 6.3 billion in 1992 to more than $220 billion in 2011. Trade with China today is now more than South Korea’s trade with the United States and Japan combined.

Despite the strong growth in economic ties, relations have not been easy between the two countries in recent years. A series of factors have contributed to tensions in the broader relationship such as disputes over the repatriation of North Koreans, Chinese fishermen in disputed waters, historical issues related to the Kingdom of Goguryeo, and differing approaches in how to manage the regime in Pyongyang.

However, Park may be ideally placed to improve relations between China and South Korea. She is well liked in China and has made improving ties between Seoul and Beijing a priority. Prior to her inauguration, she made the gesture of sending her first special envoy to Beijing. As improved ties and coordination with China will play a significant role in Park’s attempt to reshape Seoul’s relationship with Pyongyang, she has also proposed the creation of a dialogue between the United States, China, and South Korea on North Korea.

Relations with Japan also require mending. Tensions began to rise last year when the two nations were unable to implement an intelligence sharing agreement on North Korea, and historical issues related to comfort women and Dokdo began to flare.

Park has suggested that a proper understanding of history would help in relations with Japan, but that will likely take time for the Japanese government. In the interim, Park will need to manage the desire to see Japan move on issues of history, while at the same time moving forward with key policies such as a revival of the aborted intelligence sharing agreement and the Korea-China-Japan FTA.

However, improving ties could prove more challenging than with Beijing. While perhaps understandable in light of President Lee’s visit to Dokdo last year, sending a Cabinet official for the first time to attend Takashima Day (Japan’s name for Dokdo) just prior to Park’s inauguration surely does not send a signal of the Abe government looking to move past historical issues with South Korea to encourage greater cooperation.

North Korea – In spite of North Korea’s third nuclear test, Park plans to continue with her policy of trust building with Pyongyang. Commonly referred to as “TrustPolitik,” the policy envisions building trust between North and South Korea through a series of incremental measures. This would include the separation of humanitarian and nuclear issues, the recognition of prior agreements, cultural exchanges, and joint economic projects.

However, it is unclear if North Korea is ready or interested in dialogue. In the last few months, North Korea has successfully launched a satellite into orbit and tested a third nuclear weapon. It has stated that its continued missile and nuclear tests are directed at the United States. During a debate at the UN Committee on Disarmament, a North Korean official threatened South Korea with “final destruction.” None of this of course takes into account the recent YouTube videos depicting an attack on the United States or President Obama in flames.

While North Korea has often used heated rhetoric in the past, the confluence of tests and rhetoric make establishing any meaningful dialogue with the regime difficult. Park will have to balance a policy of credible deterrence, while time finding avenues for dialogue that allow South Korea rather than North Korea to set the tone for the relationship. The challenge for Park is that ultimately she must have a willing partner in Pyongyang.

Additionally, building trust as Park has proposed will require time. As in any relationship, trust is a two way street and must be earned. This means that any progress could be easily undermined. However, Park’s trust building is not limited to North Korea. One of the irritants in Beijing’s relationship with Seoul has been their differing approaches to Pyongyang. Improved North-South relations could also play a role in improving ties between Seoul and Beijing.

Conclusion

While North Korea has received much of the attention in the lead up to Park Geun-hye’s inauguration, it is just one of a series of challenges that the Park administration will face. While all South Korean presidents strive to make progress with North Korea, her legacy will most likely be determined in the same way as most democratically elected leaders – how she handles the economy.

Taking steps to address social welfare issues and gender equality will help strengthen the economy and to reduce growing income inequality in South Korea. At the same time, getting Seoul’s relationship with its immediate neighbors right could also have spillover effects on the economy and enhance its influence as in international affairs. In the long run, all of the economies of Northeast Asia need to undertake reforms to encourage future economic growth. Reaching high quality trade agreements between South Korea, China, and Japan that spur real economic changes will be much more likely if relations begin to improve overtime.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade for the Korea Economic Institute. The views expressed here are his alone.

Photo from Plaubel Makina’s photostream on flickr Creative Commons.

By Jeffrey Robertson

When the Lee Myung-Bak administration took office in February 2008, the public’s mood shifted quickly. By the end of June 2008, people were on the streets in protest, including more than 80,000 in a single night’s candlelight vigil; the entire cabinet had offered its resignation; and Lee Myung-Bak’s approval ratings had fallen below 20 percent. Could the same occur to the Park Geun-Hye administration in 2013?

Park Geun Hye will be inaugurated as South Korea’s eleventh, and first female president on February 25, 2013. However, the initial euphoria of a first female president has subsided. Public attention rapidly turned towards the selection of the presidential transition committee and its alleged lack of transparency; key ministerial appointments; and the the substantial changes to government administration that will be put into place.

A less obvious current of commentary is also beginning to gain traction. The incoming Park administration faces a substantial fiscal policy challenge in the financing of its election promises – a challenge that could ultimately become its greatest political risk.

While differing in details, the election promises of each candidate in the December 2012 presidential election focused on achieving ‘economic democratization’. Essentially addressing four often quoted international comparisons:

• South Korea ranks at the lower end of Organization for Economic Development and Cooperation (OECD) welfare expenditure.
• Income polarization is the second widest among OECD member states.
• Female participation in the workforce remains amongst the lowest in the OECD and the gender pay gap is the highest among OECD countries.
• Small and Medium-sized Enterprises (SMEs) face major growth constraints with a significantly smaller percentage of mid-sized firms – the growth stage after SMEs – compared to other advanced economies.

The Park administration will inherit an economy that is emerging from the global financial crisis in a better position than most other advanced economies. However, the challenges cannot be underestimated. Financing election promises will be difficult.

Average GDP growth throughout the Lee Myung-Bak administration was substantially lower than during the Kim Dae-Jung and Roh Moo-Hyun administrations, while 2012 has seen the largest gap between national growth and International Monetary Fund (IMF) estimates of global average growth since the 1997-98 Asian Financial Crisis. As leading forecasters trim economic growth forecasts for 2013, concerns that South Korea has entered a low-growth stage of development similar to other advanced economies have come to the fore.

In addition, the government must consider the external environment; the economic impact of rapprochement and/or change in North Korea; and the increasing challenges of a rapidly aging population. This does not bode well for an incoming administration facing a substantial fiscal policy challenge to finance election promises.

Could the failure to achieve ‘economic democratization’ transform into social protest? There is an inherent degree of political risk regardless of the administration’s ability to finance its election promises.

Firstly, Park Geun-Hye received 51.6 percent compared to 48.0 percent for the main opposition’s Moon Jae-In, with a voter turnout of 75.8 percent. In Seoul, Park gained 48.18 compared to Moon’s 51.42 percent, while across the nation results favored Park in the conservative south-east and favored Moon in the left-leaning south-west. There remains a lasting and potentially fragmentary divide.

Secondly, the election demonstrated an increasing generational divide between older conservative voters and younger liberal voters. Older voters view Park in terms of stability and security, while younger voters view her in the context of a ruling elite that profited under authoritarian rule. In terms of demographics, social protest will more likely breakout amidst the latter group.

Finally, while Park Geun-Hye’s victory shows that she was able to overcome attempts to associate her with the authoritarian rule of her father, the connection remains a galvanizing factor for both the center-left and far-left of South Korean politics.

However, contrasts with the Lee administration need to be assessed carefully. Both sides of politics are keen to avoid a repeat of the June 2008 protests, which resulted in strained relations with the United States and are thought to have cost the economy as much as $2.5 billion. In addition, the incoming administration will have a significantly longer honeymoon period.

The 1 January, 2013 revised government budget frontloads 70 percent of its expenditure to the first half of the year and focuses on welfare. This both serves as a stimulus to the economy and provides a degree of breathing space to the incoming administration.

In early 2008, the new opposition retained a degree of coordination and influence after 10 years of progressive rule. In 2013, after five years of conservative rule the main opposition Democratic United Party (DUP) is disorganized with rival factions apportioning blame for defeat and younger factions seeking to increase their influence within the party. Public anger does not transform into public protest easily. It requires coordination, momentum and luck.

In 2008, the incoming administration appeared elitist and distant. In contrast, Park has a record of skillfully responding to the public’s mood. The incoming administration appears to have already begun to moderate public expectations by reiterating the significance of external challenges to the economy; highlighting the substantial administrative changes underway; and clarifying high profile and popular, but fiscally problematic election promises.

This may be enough to avoid a repeat of the candlelight vigils that plagued the Lee Myung-Bak administration.

Jeffrey Robertson is a Visiting Professor at the Korea Development Institute (KDI) School for Public Policy and Management and is a Contributing Analyst for Oxford Analytica. The views expressed here are the author’s own.

Photo from 87ab’s photo stream on flickr Creative Commons.

By Nicholas Hamisevicz

A year of transitions finishes in historic fashion as South Korea elects Park Geun-hye as its first female president. Her election capped off a series of democratic presidential elections that featured nicely at the beginning and end of this year of transitions, leading off with Ma Ying-jeou winning reelection in Taiwan. Yet North Korea still tried to garner all of the attention. Kim Jong-il’s death in late December 2011 and the rocket launch this December briefly took headlines away from these important elections. Despite these North Korean events, much of the focus will turn to the new leader in South Korea. While Park Geun-hye will still have to deal with North Korea and relations in the region, she will also have a heavy domestic agenda that will be vital for the future of South Korea. Her ability to handle North Korea relations while working toward solutions to domestic issues will determine the rest of her legacy in the Blue House beyond being South Korea’s first female president.

While there is no polling data yet on the impact of the North Korean rocket launch or the effect of important voter concerns on the election, relations with North Korea were likely seen as an issue during the election, not the issue. There were increasing sentiments in South Korea that Lee Myung-bak’s policy was not working. Both Moon Jae-in, the progressive candidate, and the conservative Park Geun-hye, offered ideas on reengaging North Korea. Some of Park’s ideas during the campaign for reaching out to North Korea consisted of humanitarian aid, resuming family visits, diplomatic, and social exchanges, and expanding Kaesong. These possibilities for dealing with North Korea would all fall under her trustpolitik policy toward North Korea. While still vaguely defined, the recent North Korean rocket launch will probably force Park Geun-hye to emphasize the trust part of the trustpolitik early in her administration.

A more cautious approach toward North Korea will help U.S.-South Korea relations remain positive and allow for the U.S. to be more prepared for South Korea’s engagement process with North Korea. The U.S. would like to follow South Korea’s lead with inter-Korean relations, and appear in coordination with its ally. Ideas like restarting humanitarian aid to North Korea or expanding Kaesong are politically feasible for support in both South Korea and the United States.

Even with all of these issues connected with North Korea, Park Geun-hye has an ambitious domestic agenda as well. Chaebol reform, rising education costs, an increasing unemployment rate, and creating greater economic gains throughout Korean society were all important campaign topics. Many of these issues fall under the rubric of “economic democratization,” key buzzwords during this election and involving the idea of closing the gap between rich and poor in Korea and making sure all Koreans can gain from its overall economic success. Moreover, a demographic challenge will also require Park to find ways to address some of these issues quickly as well as hope the interconnections in many of these problems also permeate through many of the solutions.

With pressure to fix the domestic economy and South Koreans’ individual welfare along with a desire to see improved relations with North Korea, Japan, and China, all while not ruining the current positive U.S.-Korea relationship, Park Geun-hye will have to work quickly on both fronts to have a chance of succeeding. Opportunities are there for both South Korean domestic and international success.  All South Korean presidents have to navigate a potentially turbulent Northeast Asia while solving domestic problems. Yet the emphasis and importance placed on Korea because of an Asia-Pacific century, the expectations for a Global Korea, uncertainty over the future of North Korea as well as U.S.-China relations, and the need for continued economic success only increases the difficulty and necessity for a impactful Park Geun-hye administration for the future of South Korea.

Nicholas Hamisevicz is the Director of Research and Academic Affairs for the Korea Economic Institute. The views represented here are his own.