A Lost Year for the Korean Economy

Last year, the economy suffered its most severe setback since the 1997 foreign exchange crisis. The economic growth rate fell to an estimated 2.9 percent compared to 6.3 percent in 2002.

Corporate bankruptcies stand at 5,308, up 25 percent from a year earlier. Unemployment hovers around three percent. The youth unemployment of close to nine percent has emerged as a social issue.

Consumer credit defaults rose to 3.72 million. In terms of the entire economically active population of 21.93 million, 16 out of every 100 persons are in default.

The livelihood of the people has plunged. The gross national income during the first three quarters of last year was about 321 trillion won, the first decline in five years since 1998

Meanwhile, housing prices have soared. Since the start of the current government, the average per-square meter price of Seoul apartments was 11.38 million won in February of this year, up from 9.89 million during the same period of the prior year. The price went up as high as 11.54 million won in October of last year.

Slowdowns in consumer spending and investment are weighing down the economy. The production of consumer goods for the local market fell by 5.6 percent year on year. Investment in production fell by 4.6 percent.

Financial instability has deepened. Earlier last year, when the credit card crunch surfaced, the government attempted to patch up the crisis with an extension of the maturity of corporate bonds and an injection of fresh funds by large stockholders into credit card companies. However, LG Card fell victim to the meltdown.

-Principle on Shaky Ground

The government’s lack of principle is more troubling than the quantified results of its economic policies. Especially, the government’s attitude toward labor disputes led to a decline in corporate investment.

Earlier last year when workers walked off the job at Doosan Heavy Industry, the government intervened and persuaded management to accept demands by the labor union. It took sides with the railroad trade union when it planned for a stoppage against privatization. In the face of the strike by free-contract truck drivers, it decided to subsidize the increased percentage of the fuel price and reduce nighttime tolls for them.

As the public turned critical about its labor measures, the government made an about-face, mobilized the police against the second railroad strike, and disciplined all striking railroad workers.

The government has maintained that it responded to the labor issue based on principle. However, it is criticized by the labor as anti-labor and by management as pro-labor.

-Easing Public Concerns

Analysts said the government should eliminate uncertainty and maintain market-oriented policies if it wants to be rightly evaluated for the remainder of its term.

“What the people are worrying about is his economic policy line,” said Yoo Jang-hee, the dean of the Graduate School of International of Ehwa Woman’s University. “His less than ordinary remark has great bearing on corporations.”

“If the first year of the Roh government was an experimental period, he should use the logic of the market, not the logic of politics, to resolve economic issues,” Yoo continued. “Policies that will ease the public are needed.”

Prof Lee Man-woo of the department of economics at Korea University said, “The government’s unprincipled paternalism toward labor strikes has factored in the spread of uncertainty in the entire economy. He has to maintain the free market principle, not populist stopgap measures.”

koh@donga.com