The reaction from Seoul to US Secretary of State Mike Pompeo’s visit to North Korea during July 6-8 was mixed with some experts questioning the value of these meetings. The conservatives, in particular, have argued that North Korea has yet to take any tangible steps towards denuclearization. The progressives, on the other hand, have continued to maintain the position that the US must provide credible security guarantees for Pyongyang in order to achieve complete denuclearization.
President Moon’s visit to India and Singapore
President Moon visited India and Singapore during July 8~13 to promote his ‘New Southern Policy’ and the 3P+ (people, prosperity, and peace) partnership.
In India, President Moon met Indian Foreign Minister Sushma Swaraj and Prime Minister Modi. The two sides agreed to hold regular state-level meetings and expand tourism as well as educational and technological exchange. The two countries also agreed to deepen cooperation in IT, aerospace, and defense.
In Singapore, President Moon met Singaporean President Halimah Yacob and Prime Minister Lee Hsien Loong. President Moon reaffirmed his determination to declare the end of the Korean War within the next yearand expressed his optimism regarding the follow-up talks between the US and North Korea.
On July 10, political parties agreed to reorganize the 20th National Assembly.
On July 13, Moon Hae-sang (Democratic Party of Korea – DPK) was elected as the new Speaker of the National Assembly, while Lee Ju-young (Liberty Korea Party – LKP) and Joo Seung-yong (Bareun Mirae Party – BMP) were elected to be vice speakers.
As for the Standing Committee, the DPK will chair 8 standing committees while the LKP and BMP will chair 7 and 2 committees, respectively. The remaining one committee will be designated to the Peace and Justice Negotiation body. Election for the chair of each committee will be held on July 16.
Standing Committee Chair Assignment by Party
|Assigned Standing Committee|
|• House Steering• Strategy and Finance• National Policy
• Science, ICT, Broadcasting, and Communications
• National Defense
• Gender Equality and Family
• Public Administration and Security
• Culture, Sports and Tourism
|• Legislation and Judiciary• Land Infrastructure and Transport• Special Committee on Budget and Accounts
• Foreign Affairs and Unification
• Health and Welfare
• Trade, Industry, Energy, SMES, and Startups
• Environment and Labor
|BMP||• Education• Intelligence|
|Peace & Justice||• Agriculture, food, rural affairs, oceans and fisheries|
On July 12, the Bank of Korea (BOK) announced that it would maintain the base rate of 1.5% in the short term. The factors contributing to this decision included steady growth in the domestic economy powered by healthy consumption and export revenues as well as positive adjustments in construction and building investments. The latest announcement dispelled suspicions that the BOK would attempt to reduce the base rate gap by matching the rate increase in the US.
On July 6, the government released more information about the new tax measures that would target owners of multiple (3+) properties or a single high-value property. The government also announced that it would lower the ceiling on tax-free earnings in financial investment from KRW 20 million to 10 million. Estimates by the Korea Institute of Public Finance put tax revenues resulting from this change alone to be at KRW 130 billion (62% increase).
Table 1. New Property Tax
Value (in KRW)
|0.5% (-)||0.5% (-)|
|0.85% (+0.1)||1.05% (+0.4)|
Source: Ministry of Strategy and Finance
The government argues that the ultimate goal of these measures is to fix an inefficient tax system. The government estimates that the number of property owners whose taxes will rise as a result of this change will be about 26,000 in 2016, or 0.2% of homeowners nationwide. In order to reduce potential contractionary influences on the economy, the government plans numerous carve-outs aimed at property development.
Oil Price and Inflation
The Brent crude price for oil peaked at just under USD 80 per barrel in May following supply shocks caused by the conflict in the Middle East and US sanctions on key OPEC nations. Saudi Arabia and Russia agreed to mobilize unused production capacity to compensate for losses in oil supply, increasing production up to 1 million b/d. After settling on the agreement in June, prices showed an immediate decline.
Oil price in Korea is expected to reflect these changes in two to three weeks. As an economy heavily dependent on energy imports, an increase in oil price puts inflationary pressure on the economy. For instance, the YTD price of agricultural and marine products increased by 6.7 and 5 percent, respectively.
The Minimum Wage Committee voted to increase the minimum wage to KRW 8,350 (+10.9%). Adding to tensions was an anonymous panel that took up the request for a graduated minimum wage that accounted for different sectors, types of occupations and business size. While nine members of the panel voted in favor of a graduated scheme, 14 voted against. Suppliers most vociferous about the motion argued that the panel lacked adequate understanding of the working conditions and requirements of certain industries, particularly smaller firms and manufacturers. Frustrated managers of these affected firms threaten to boycott the decision entirely.The Korea Federation of Micro Enterprise (KFME), for instance, argue that they have been excluded from the process. A survey conducted by the KFME found that 46.9% of affected firms plan to turn their businesses into sole proprietary or family-owned management, 30.2% plan to reduce employees and 24.2% want to reduce work hours.
On July 12, Finance Minister Kim Dong-yeon stated that increasing the minimum wage would put downward pressure on employment. This is the first time that an official acknowledged the negative impact of the minimum wage policy. He further affirmed the need to expend greater effort in understanding the capacities of affected firms.
The Ministry of Trade, Industry and Energy (MOTIE) reported on July 4 that the first half of 2018 saw record levels of FDI inflows at +64.2% (USD +15.75 billion). The manufacturing industry saw the largest increase, with FDI jumping by +254%. In addition to FDI commitments, the overall realized FDI increased by 76.4% (+224% in manufacturing). MOTIE report identified deeper integration into the global value chains as the main cause behind this increase, with particularly large increases coming from China (460%) and the European Union (106.3%).
Corporate Restructuring Promotion Act
On July 2, the Financial Supervisory Service (FSS), Korea Federation of Banks, Korea Financial Investment Association and other finance-related organizations requested the National Assembly reinstate the Corporate Restructuring Promotion Act (“Act”). This move follows an ongoing debate between finance ministers and the National Assembly after the abrogation of the contentious Act, effectively terminating the workout agreement options used to rescue insolvent businesses.
Workout agreements allow firms to renegotiate the terms on their corporate liabilities once they have defaulted to avoid bankruptcy, liquidation, and/or foreclosure. Finance Ministers argue that such debt rescheduling is crucial during periods of economic stress, referring specifically to high unemployment.
Conversely, opposition party members argue that the Act has been a springboard for government intervention in business, blocking necessary structural adjustments. If the movement to reinstitute the Act is successful, this would mark the fourth renewal since 2001. Academics and politicians who oppose the Act argue that market-based solutions are needed to manage bankruptcies.
 “[사설] 기대 못 미친 폼페이오 방북, 북·미 한발씩 양보해야”, 한겨레, 2018년 7월 8일.
 “문 대통령, 인도·싱가포르 순방 출국…“신남방정책 본격 추진””, 한겨레, 2018년 7월 8일.
 “[전문] 文대통령 “지금이 한국·인도 특별 전략적 동반자 관계 격상시킬 적기””, 중앙일보, 2018년 7월 10일.
 “문재인 대통령 “올해 종전선언 목표로 北-美와 협의할 것””, 동아일보, 2018년 7월 12일.
 “여야, 20대 국회 후반기 원구성 합의…41일만에 입법부 공백 해소”, 조선일보, 2018년 7월 10일.
 “새 국회의장 문희상, 부의장 이주영·주승용…45일만에 국회 공백 해소”, 한겨레, 2018년 7월 13일.
 Joint negotiation body representing the Peace party and Justice Party.
 “여야 후반기 국회 원구성 합의…의장 민주당·법사위 한국당”, Newsis, 2018년 7월 10일.
 “한은, 기준금리 8개월째 1.5% 동결”, 한겨레, 2018년 7월 12일.
 “고가 주택보유자ㆍ금융자산가 타깃’…경기 어려운 상황에 증세 부적절 지적도”, 중앙일보, 2018년 7월 3일.
 “’과표 6억~12억 종부세율 0.05%p 더 인상”…정부안과 재정특위 권고안의 차이는”, 조선비즈, 2018년 7월 6일.
 “3주택자 ‘타깃 증세’… 합산 33억때 종부세 1558만원→2648만원”, 동아일보, 2018년 7월 7일.
 “All eyes on oil supply after Opec deal to boost output”, Financial Times, 2018 June 26.
 “국제 유가 오르는데 국내 유가 하락 왜?”, 경향비즈, 2018년 7월 4일.
 “유가 강세에… 6월 소비자물가 1.5% 상승”, 동아일보, 2018년 7월 4일.
 “속도 조절? 주휴수당 포함하면 최저임금 1만원…정부 EITC 확대 등 지원책 내놓는다”, 조선비즈, 2018년 7월 15일.
 “최저임금 차등화 부결… 경영계 ‘협상 보이콧’”, 동아일보, 2018년 7월 11일.
 “소상공인연합 ‘업종별 최저임금에 우리 목소리 다 묻혀’”, 경향신문, 2018년 7월 13일.
 “소상공인 ‘최저임금 못 지킬 판, 우릴 잡아가라’”, 중앙일보, 2018년 7월 12일.
 “김동연 ‘최저임금, 사업주 수용능력 고려해야’”, 동아일보, 2018년 7월 13일.
 “상반기 외국인직접투자 사상 최대…17조5000억원”, 조선비즈, 2018년 7월 4일.
 “금융위 ‘기촉법 대체할 채권단 자율협약 마련’”, 동아일보, 2018년 7월 3일.
 “기촉법 공백에… 부실기업들 법정관리로 내몰리나”, 조선일보, 2018년 7월 3일.
 “기촉법 ‘4번째 부활’ 공은 국회에”, 경향비즈, 2018년 7월 2일.
Contributing Staff: Kim Seonkyung and Lee Soo-hyun
Editor: J. James Kim