[Op-Ed] Exit Strategy

Optimists have released rosy prospects for the global economy while skeptics have stuck to bearish forecasts. The Organization for Economic Cooperation and Development yesterday said the world economy will contract 2.2 percent this year, up from its prediction of negative 1.7 percent made three months ago. The World Bank revised its forecast Monday to minus 2.9 percent this year from minus 1.7 percent made in March. Prominent economists such as New York University professor Nouriel Roubini have also frequently changed their predictions. In his book “Fortune Sellers,” William Sherden criticizes false predictions made by reputed experts, saying, “Forecasts are about as reliable as the 50-50 odds in flipping a coin.”

At a summit in Brussels last Friday, 27 European Union leaders said in a joint statement, “The looming end of the economic slump means it’s time to start hatching an exit strategy.” With economic indicators improving in Korea, certain experts have suggested that the Korean government should also formulate an exit strategy for its economic policy. Others, however, warn that the global recession will turn out worse than expected. Accordingly, world stock markets have grown unstable in heightening uncertainty.

An exit strategy is a means of establishing and escaping from a policy to reduce side effects. Many governments have injected lots of money into their domestic markets to beat the economic crisis. Recently, however, they are considering absorbing excess liquidity via monetary policy on the grounds that excess liquidity will result in hyperinflation. The term “exit strategy” is also used in diplomacy. For example, American and Japanese media say U.S. forces stationed in other countries and Japan’s Self-Defense Force should come up with exit strategies.

Seoul clearly needs to release new policies but a premature exit strategy could cause more trouble at a time when the global economy is exposed to high uncertainty and affected by sociopolitical issues. In 1997 in Japan, then Prime Minister Ryutaro Hashimoto saw economic indicators improve and declared an end to Japan’s recession. He then raised consumption taxes and interest rates, but this resulted in stifling the Japanese economy and putting a heavier fiscal burden on Tokyo. As Korean Strategy and Finance Minister Yun Jeung-hyun said a few days ago, the appearance of a swallow does not herald the beginning of spring.

Editorial Writer Kwon Sun-hwal (shkwon@donga.com)