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[Opinio]Let`s Experience Overcoming IMF Once again

Posted August. 21, 2001 08:47,   

한국어

Contrary to earlier predictions, the state of the international economy is getting worse on entering the latter half of the year. U.S. and other advanced industrialized nations suffered an economic standstill in the early part of the year and now appear to be falling into a period of stagnation.

As the difficulties of leading nations spread to developing nations, predictions forecast that the rate of global economic growth this year will fall short of the 1998 level when Asian nations faced financial calamity. The U.S. led a new economy at the end of the century with the booming IT corporations but the bubble burst. The new American economy, which had depended on technological innovation and capital investment, had to change gears and wait for the traditional business cycle to run its course. It appears that a painful stage of recession is to follow the long-term prosperity and fantastic revival of the American economy after 10 years of decline.

In retrospect, Bill Clinton`s Democratic administration maintained a strong dollar policy toward the end of his term and attracted a significant portion of the world`s fluid capital. Ironically, it was the U.S. who put the Asian corporations to task for excessive facilities during the financial crisis and it was the U.S. who used fluid capital to create an excessive investment boom in the IT businesses.

As a result there was an oversupply of semiconductor production (the so-called main grain of the IT age) worldwide, leading to a 58 percent fall in production costs through the last and current year. Korea`s terms of trade have become even worse than the 1996 semiconductor price collapse. In a word, the current international situation is worse than 1998 if one puts aside the financial sector with venture capital investments and looks at the actual production.

Korea has done relatively well in the early part of the year when compared to its economic competitors such as Japan and Taiwan. It responded to the worsening trade conditions by appropriately regulating the currency rate, alleviating the decline in IT exports, and greatly improving standard exports such as automobiles. It also made additional investments in public funds as a measure to stimulate local economies, improved consumption rates, and helped to revive the service industries. Consequently, Korea was able to maintain a 3 percent growth rate in both domestic and international markets whereas the domestic economy in Japan, Taiwan, and Singapore suffered a negative growth rate.

However, if Korea does not apply a labor intensive economic maintenance plan during the current time, it does not seem likely that the national economy would revive. The depressed state of IT businesses worldwide looks like it will continue for a time, and it will be difficult to turn the economy around when their performance level keeps on falling. As skepticism about the IT economy is spreading, the strengthening of the dollar as a basic condition for IT investment boom is faltering and the state of the international financial market is becoming unclear. Such a situation is putting a damper even on the revival of local economies in Korea. If this continues, it will be difficult to even maintain the rate of economic growth from the first half of the year.

Now is the time to resurrect the experience of overcoming the economic situation in 1998. At the time, Korea made investments in public funds at the right opportunity, sincerely implemented structural adjustment in financial structures, maintained total financial income, expenditure and deficit, and pursued an aggressive policy of saving. These measures restored the capital market and Korea initiated an economic revival by focusing on the local economies.

Unfortunately, after successfully completing the IMF structural adjustments, the sense of crisis dissipated and the discord between different social classes are making it difficult to create the kind of social unity necessary to overcome economic hardship. It has also become difficult to propose and execute a well-ordered policy. The political strife between the majority and minority parties makes it hard to increase public funds needed to make structural changes and financial expansion for supporting local economies. One cannot expect the social discord to lead to an unexpected lax in regulations either.

There has to be social unity right now, at least on the economy issue, so that structural adjustments will be made for problematic businesses and an aggressive policy of economic maintenance will be followed in the macro-economy sphere. Only then can we overcome the crisis of IT economy recession and greet a new stage of recovery.