Anti-corruption act seen to deal heavy blow to economy

Economic experts predict that the new anti-corruption act will inevitably cause shock on the domestic consumption economy in the short term, when it takes effect in earnest from September next year.

Some raise concern that expensive entertainment and costly gifts exceeding the legal limits will be increasingly more frequently provided under the table, underground economy could grow even further. Others predict that if the act also known as "Kim Young-ran Act," named after the former Anti-Corruption and Civil Rights Commission chief, takes its root without causing significant side effect, it could eventually increase transparency in Korean society, and generate positive effect across all sectors.

“Depending on how the act will be implemented, its impact on the economy will also be different accordingly,” said a researcher at a private economic think tank. “If officialdom comes under heavy pressure due to a flurry of internal whistleblowing and anonymous letters following the act’s effectuation, it will inevitably induce long-term effect on domestic consumption, going beyond short-term shock."

By industry, restaurants, hotels, department stores, door-to-door delivery service, and leisure industries will suffer setbacks, while local economies near government complexes including Seoul’s Gwanghwamun district will also face significant damage.

“Credit card payments at restaurants will decrease, and paying cash rather than paying for meals or golf green fees will become more prevalent,” said a source in the business community. “After all, as the underground economy expands, overall inefficiency in the economy is feared to increase.”

Sales in service industries including lodging businesses and credit card use actually declined in 2004 when payers were obliged to certify the purpose of treatment and names of beneficiaries for entertainment fee worth 500,000 won (455 U.S. dollars) or more and the special anti-prostitution act took effect.

The retail industry predicts sales of gift sets for holidays and pricy gift certificates will decline. Corporations purchase 30 to 40 percent of gift sets during traditional holidays in Korea. The dining industry and whiskey sector are set to face a similar situation as well. Upscale restaurants serving expensive meals, hotel restaurants and steak houses could also suffer damage.

“Giving that it sometimes costs more than 30,000 won (27 U.S. dollars) per person even when eating just grilled samgyeopsal (pork belly), and expensive places such as galbi (grilled rib) restaurants will be affected by the act,” said a source at the Korea Food Service Industry Association.

The golf industry will inevitably incur damage as well. Notably, membership-based golf courses that are widely visited by patrons providing entertainment could be dealt a devastating blow. Some industry insiders predict that the new act could cause their membership price to plunge by 20 percent to 30 percent.