Worried about a Bad Influence on Korean Economy Recovery

Such as a current balance deficit and budgetary deficit caused a worse American Economy in 1980’s, ‘Twins deficits’ has been appearing again.

Accordingly, the dollar in USA was turned back to a bearish trend, and international investment funds in American securities market and bond market have been withdrawing steadily as side effects

The government has concerned about the twins deficits of America, because it can have a bad influence on the recovery of Korean economy that has the large weight on external transaction.

▽’Twins deficits after the laps of 5 years’ 〓 Despites economic slump due to a terror in USA, the American economy showed off the growing demand on exports last year and had deficits on ordinary profits of USD 417.4 billion. This year the economy has been slowly going better. So, the deficit on ordinary profits will increase and will be estimated at over USD 500 billion to 5%, compared with GDP.

It is certain that the black-ink budgetary balance will go down to deficit this year. Experts estimate that the budgetary deficits of the year will reach to USD 150 billion as a tax on capital gain has decreased due to the depression of securities market, but national defense expenses and agricultural budget have increased by approx 20% over the last year. This deficit trend will be more serious next year.

▽ Obstruction to World economy recovery 〓 Decrease of corporate income and expansion of deficits on ordinary profits of America have brought about the bearish trend of the recent dollar. The dollar in USA of February was up to 134.71 Yen, but on May 30th, the dollar dropped to 123.35 Yen.

Accordingly, the foreign investment funds seem to be withdrawn slowly beyond American. According to the recent report of IMP, if the value of dollar in USA keeps going down, the funds will be flowed out and it will badly influence on the international money market..

If the budgetary deficits are getting serious, it will deadly affect the money market.

Lee Chang-seon, a researcher of LG Economic Research Institute mentioned, “The economy currently shows a stable trend, but the economic depression of Korea, Japan and Europe would be brought when the interest rate jumps up due to increasing budgetary deficit. Shin Je-yun, a deputy manager of international finance, the Ministry of Finance & Economy, said “ the trade pressure has been strictly given by USA, but the international investment funds losing the interest in the USA market will go to the Asian market such as Korea. Due to a fluctuating capital inflow/outflow, the stabilized economy may be shaken”.

Rae-Jeong Park ecopark@donga.com