South Korean president-elect Park Geun-hye has seemingly conflicting images. Park is the daughter of the country's longest-serving dictator Park Chung-hee, but she is set to become the first female president in the country's history.

Park garnered over half of all votes in the presidential election for the first time since democratic elections were introduced in 1987, but Park's conservative ruling Saenuri party has been by and large identified with business conglomerates, or chaebol, and the establishment, representing the small number of population.

During her election campaigns, Park sought to recast her pro- business, conservative image by putting forth an agenda of " economic democracy." The buzzword was yelled throughout the presidential race by both conservative Park and Moon Jae-in, the liberal candidate of the main opposition Democratic United Party.

WHY ECONOMIC DEMOCRACY

During the 2007 presidential election, then-conservative candidate Lee Myung-bak won a landslide victory over liberal candidate Chung Dong-young. At that time, voters in Seoul favored pro-business Lee who promised higher economic growth rather than Chung with pledges focusing on equal distribution of income.

Closing the income gap was not a top concern for South Korean politicians until the 2008 global financial crisis, since solid growth and the asset price boom from 2005 to 2007 improved living conditions for everyone.

Political agenda, however, has changed since 2008 as the country's income inequality deepened further during the post- crisis period. According to the Fair Trade Commission, total assets of the country's top five chaebols, including Samsung, Hyundai Motor, SK, LG and Lotte, surged to 57 percent of GDP in 2012 from 36 percent in 2007.

According Nomura Global Economics, monthly wages in small- and mid-sized enterprises (SMEs) increased by an average of 7.4 percent in the three-year period through 2011. It was lower than a 9 percent expansion for large firms over the same period, not to mention the many other non-wage benefits available to large firm employees.

Widening income gap drove politicians to push hard for economic democracy that is composed of two tenets, including social welfare expenditure and restriction on the concentration of economic power to chaebols or large business groups.

LESS TOUGH ON CHAEBOL

President-elect Park was unlikely to get as tough on the chaebol issue as her rival Moon might have if he were to be elected. Park has been lenient on the corporate governance issue by opposing to mandatory dissolution of existing cross- shareholdings, or circular equity investment, by big businesses. She dropped a proposal to reinstate a ceiling on total equity investment.

Park supported greater separation of financial and non- financial businesses. She proposed a gradual reduction of financial subsidiaries' voting rights for non-financial affiliates by 1 percentage point per year to 5 percent by 2017. If her pledges are kept, Samsung Group's financial affiliates would be limited to execute their voting rights for a combined stake of 8.78 percent in Samsung Electronics.

"The (new) government will provide more support to small and medium-sized businesses to break down the influence of so-called chaebols. But, these firms such as Samsung and Hyundai are expected to be subject to fewer restrictions than if Moon had become leader," said Matthew Circosta, an economist at Moody's Analytics in Sydney.

The new government under Park's presidency was expected to tighten regulations on conglomerates' distribution businesses to protect mom and pop shops. Park said at a meeting with chaebol heads on Dec. 26 that large firms should refrain from tapping into the business area of mom and pop shops, cautioning over excessive purchases of land and real estate by big companies.

The tougher regulation, however, would not have a material impact on big retail companies since the Lee Myung-bak administration already regulated the conglomerates' expansion into distribution businesses. In addition, Park has been against corporate tax hike and capital gains tax hike on multiple homeowners.

EXPORT-DRIVEN ECONOMY

"Government support will focus more on smaller firms, which in turn help create new jobs. Economic structure will rebalance toward small firm, domestic demand-driven growth away from the existing export-driven, big business-dependent one," Park said at headquarters of the Korea federation of small and medium business (Kbiz) on Dec. 26, 2012 before meeting with chaebol heads on the same day.

Park's economic democracy focused more on domestic markets, but market watchers said the goal of domestic demand-driven growth would be difficult to achieve given the small population and high urbanization rate.

"We do not expect the South Korean economy to rebalance away from exports and toward domestic demand because South Korea's small population of 49 million in 2010 and the very high urbanization rate of over 80 percent limits its domestic demand potential," said Kwon Young-sun, an economist at Nomura International in Hong Kong.

The main growth driver of the South Korean economy remains export, which accounted for 58 percent of the country's GDP in the first half of 2012. Given that the South Korean won is not a reserve currency, Seoul will seek to accumulate sufficient foreign reserves by keeping a current account surplus trend as part of efforts to reduce vulnerabilities to potential external shocks.

Domestic demand-led growth would require structural reforms to increase productivity in the service, SMEs and self-employed sectors, but it would inevitably entail a lot of hard work such as consolidation, competition and market openness in the short run. Within the economic democracy frame, such reform would not happen.

SOCIAL SPENDING

Given the limited domestic demand potential of the South Korean economy, the new government under Park's presidency was expected to maintain the existing export-driven, big business-dependent growth model. Park was also forecast to be relatively lenient on the chaebol issue considering her rigid stance against tougher regulations on the corporate governance.

However, the new government was estimated to increase its social welfare expenditure as the income equality has become a top issue at the South Korean political arena since the 2008 global financial crisis. Lawmakers in Seoul already reflected growing demand for public welfare in the 2013 budget plan.

The National Assembly passed the 2013 budget bill of 342 trillion won (321.43 billion US dollars), among which 104.3 trillion won was allotted to the social spending. The figure for social spending topped the 100 trillion won level for the first time in the country's history, and the proportion of the social spending to the total budget expenditure breached the 30 percent mark for the first time.

Among the welfare budget, 2.4 trillion won was allocated to implement Park's campaign pledges. Those include full support for enrollment in childcare facilities for 0-5 year olds, a pledge to reduce the burden of university tuition fees and expand support for social insurance contributions of low-income bracket.

In addition, Park pledged to provide support for after-school activities for students from low-income families and offer free education for all high school students. Entire medical expenses would be offered to patients diagnosed as having four major severe diseases. Those planned to be phased in starting 2014.

"President-elect Park's stance on economic democracy is likely to be measured, although social welfare spending will likely rise by a greater degree during the next five years of Park's term of office to meet popular demands," said Thomas Byrne, senior vice president of the Moody's in Singapore.

SUPPLEMENTARY BUDGET

Implementing those welfare policies will require trillions of won (billions of US dollars) in extra budget. President-elect Park proposed a cut in tax reduction and tax exemption, but skepticism remained over whether the indirect taxation would meet the budget demand.

Direction taxation such as hikes in corporate and income taxes will face strong opposition. In a bid to boost economic growth and increase tax revenue, the new Park Geun-hye administration may propose a supplementary budget in early 2013. "We maintain our forecast that the government will propose a supplementary budget that contains more realistic assumptions and stimulus actions in early 2013 under the new persident," said Oh Suktae, an economist at Standard Chartered in Seoul.

It would not be hard to find strong stimulus measures taken in the early years of the past presidencies. In 1988, former president Roh Tae-woo unveiled a plan to build 2 million new homes to boost the construction industry. Former president Kim Young-sam introduced a 100-day project aimed at bolstering the economy in 1993 when he took office, and former president Kim Dae-jung adopted a program to foster start-ups in 1998.

Park may follow suit after her predecessors to paint a rosy picture of her single five-year term amid the dimmer economic outlook for the Asia's No.4 economy. The finance ministry slashed its 2013 growth outlook for South Korea from 4 percent to 3 percent. The figure was lower than 3.2 percent estimated by the Bank of Korea and 3.1 percent by the Organization for Economic Cooperation and Development.

"The new government will likely focus on anti-competitive market regulations as well as increasing tax revenues and social welfare spending in an effort to narrow the income gap. As such, the new government could formulate a supplementary budget in the first half as much as 20 trillion won," said Kwon Young-sun, an economist at Nomura.