Korean Economy, Out of the Frying Pan and Into the Fire

There are growing concerns that President Roh Moo-hyun’s statement on an assessment of the public’s confidence in him would be another “criminal act,” further aggravating the Korean economy’s present dismal situation.

In particular, as it increases the uncertainty, which is critical to the economy, it is expected that the statement would put off economic recovery and exert a harmful influence on the international credibility of Korea.

According to the reports from the economy-related ministries on October 12, Deputy Prime Minister and Finance and Economic Minister Kim Jin-pyo will participate in the World Economic Forum (WEF) in Singapore on October 14 and meet representatives from nations around the world.

The Finance and Economic Ministry is planning to invite the officials of the Heritage Foundation and U.S. financial firms and hold briefing sessions on the Korean economy (IR) in New York and Washington on October 15 and 16.

Also, the Ministry of Industry and Resources will publicize the Korean investing environment to 100 of the world’s eminent institutional investors such as JP Morgan in the “2003 Seoul Forum” to be held at the Hyatt Hotel in Seoul on October 13.

One government official said, “All of these events were planned before the ‘assessment of confidence statement’. It is certain that the foreign investors will ask about the background of this statement and its influence on the economy, and we’re at a loss in trying to explain it.”

Furthermore, some people analyze that the major investment decisions of large companies will be held back, which means a “red light” for the way to economic recovery due to the growing political uncertainty after the statement.

One large company official confessed, “Small investments may not be influenced, but we can’t help considering the political situations when we decide about large investments more than 100 billion won. It is getting harder for us to plan the investment decision when the politics are so complicated.”

The confidence statement is expected to exercise a negative influence on foreign investments and the international credibility of Korea, too.

Chung Chang-young, an economics professor at Yonsei University, said, “Many experts from U.S. and Japan said ‘Korea is politically unstable even before the statement. The assessment of the public’s confidence statement will amplify this instability more seriously.”

He worried about the “Korea discount effect,” saying, “Downgrading of the international credibility of Korea and the lack of the leadership will play a major role in deepening the effect.”

Already Foreign Direct Investment (FDI) in Korea in the 3rd quarter this year (from July to September) decreased by 19.9 percent from a year ago, with a value of $969 million.

Wi Pyung-liang, secretary general of the Union for the Economic Justice, said, “I have no idea about the political effects of the president’s statement, but the economic effects are certain. The disadvantageous environment is starting to dominate the economy.”

Kwang-Hyun Kim Ki-Jeong Ko kkh@donga.com koh@donga.com