[Opinion] Five Challenges

“Five big challenges threaten the global economy,” warned Fred Bergsten, the president of the U.S. International Economics Institute, in the September 9 edition of The Economist. The challenges he refers to are the following: the annual current account deficit nearing $1 trillion, the fiscal deficit that may reach $1 trillion, increasing protectionism, a hard landing of the overheated Chinese economy, and the oil price hike that may reach as high as $60-70 per barrel.

The U.S.’ current account deficit is increasing by $100 billion annually from the current level of $600 billion. Product imports are twice the amount of its exports, so the exports must rise more than two times imports to make up for the deficit. However, the economic recovery and oil price hike are only increasing imports, with the snowballing of foreign loan principles and interests which have already reached $2.5 trillion. The U.S.’ national debt may also exceed $5 trillion by 2010. No market would be able to sustain the dollar value in this situation. It is a matter of time when the dollar is greatly depreciated, thus leading to inflation and an increase in interest rates. This can, in turn, cause reinforced protectionism and a plummeting global economy. Bergsten’s concern is that Washington has to devalue the dollar by 20 percent to maintain the status quo, and that interest rates may see a two-digit growth in theory.

China has become a growth engine of the global economy by investing almost half of its GDP and accounting for 20 percent of the increase in global trade. However, if China pursues an uncertain economic policy and brings a hard landing to its economy, the world will again face inflation and interest rate hikes. The real oil price may rise to a record-high, considering the compounded causes for the price hike, including a transnational increase in demand, lack of refinery facilities, low inventory, and political instability. Recently, the Federal Reserve Board (FRB) Director Alan Greenspan has frequently mentioned, “The big three economic recessions after the World War II were all triggered by soaring oil prices.”

President Roh has reportedly said on his way to visiting a foreign country, “Among the many challenges we face, livelihood is the top priority.” Will his words end up as empty rhetoric as before? Wasting its energy on an ideological dispute when a super-scale hurricane is approaching its territory, Korea may as well be viewed by the world as a Don Quixote wielding his spear against a ghost.

Kim Young-bong, guest editorial writer and economics professor of Chung-Ang University, kimyb@cau.ac.kr