Looming signs of another economic crisis

On Nov. 21, 1997, the Korean government asked for rescue financing to the International Monetary Fund. Three years after the critical moment, Korea again exhibits clear symptoms that it could fall into difficult times like three years ago.

With economic recession, corporations are reducing production and are refraining from hiring workers. College graduates find it difficult to find jobs, and ordinary households are feeling the squeeze of economic difficulty. In fact, many people are feeling that another economic crisis is drawing near. The number of street shops and homeless people are on the rise again, showing that the economic situation is deteriorating.

However, the government and political circles have failed to present a vision due to the lack of leadership. They refused to admit the current situation when the economy is faced with recession and external credit rating is sliding with the delay in restructuring.

Still, some macroeconomic indicators, such as the economic growth rate and foreign exchange reserve, look healthy, but many experts point out that Korea could face another crisis if the government fails to properly cope with the critical situation and just say that the economic fundamentals still are good.

Even government officials express their concern about it. A high-ranking official of the Financial Supervisory Commission, whose name was withheld, says that uncertainties are mounting with the delay in restructuring because of political vacuum and labor strikes. He warned that this country could face a crisis if the government and the political circle do not take proper measures by recovering their leadership.

Experts also indicated that the political vacuum, delay in restructuring and economic recession are three major factors that Korea needs to tackle urgently.

They noted that a series of failures in policies and politics triggered a decline in credibility and popular unrest. The National Assembly is not running properly with the question of impeachment of high-ranking prosecutors. So the National Assembly's approval for additional raising of public funds and the restructuring schedule are likely to be delayed, although the government wants it to be completed by the year¡¯s end.

The situation is directly linked to the slide of external credibility. Yu Han-Soo, chairman of CBF Financial Group pointed out that the foreign exchange crisis takes place not based on the amount of foreign exchange reserve but because of withdrawal of loans and investment funds stemming from the lack of credibility.

Corporations complain that they cannot engage in normal business activities, not even mentioning investment activities, because of continuous investigations by the authorities. The selfishness of trade unions is another problem. It is still unclear whether Daewoo Motor, which went bankrupt, will apply for court receivership. And the reaction of investors about Hyundai Engineering & Construction's self-rescue plan is rather cold.

Hong Chan-Sun hcs@donga.com