[Editorial] The President Should Take the Lead in Facing Dark Clouds on the Korean Economic Horizon

The Bank of Korea (BOK) announced that economic growth in the first quarter of this year stood at a mere 2.7 percent, marking a record low since the third quarter of 2003. Even the increase rate in exports, the last prop for economic growth, dropped to a single digit for the first time in three years. It seems that the government would find it extremely difficult to live up to its promises of achieving a rate of five percent economic growth and adding 400,000 more jobs to the payroll.

“Dark clouds” are casting a long shadow over our economic growth prospects. April’s consumer expectation index (CEI) displayed downward movement after four months, and May’s business survey index (BSI) also deteriorated, indicating that consumption and investment would be stagnant. Even the external variables for exports are not that positive. Concerns over the exchange rates for the Korean won are growing, as the global economy enters a downward phase and controversy is stirring over the possible appreciation of the Chinese yuan. All are bad signs for Korea’s profitability of exporting businesses.

Sluggish growth means a hungry life. According to the report on households’ total income and expenditures in the first quarter, released by the Korean National Statistical Office (KNSO), the increase rate in consumption expenditure hit a seven-year low of four percent, which is because incomes remain almost the same and jobs are insecure, while taxes have gone up by a whopping 10 percent. If this sluggish growth continues and real estate taxes soar even further, ordinary households will face even more difficulties.

Last month, President Roh Moo-hyun announced to Korea and the rest of the world that the Korean economy is “fully recovered in all aspects, including prices, foreign exchanges, growth rate and unemployment.” Even the recent BOK and KNSO reports on economic performance of the Korean economy, issued a few days apart, demonstrate that his statement was nothing but an absurd bombast. President Roh should be wary of reports that make him fail to recognize a crisis as a crisis. He should not give credit to reports like: “The growth rate stood at only two percent, due to a decrease in cigarette production, but things will get better sooner or later.” Also, the president should not interpret a 1.4 percent increase in private consumption as economic recovery. Effective prescriptions will hardly be found, when even the president makes a wrong diagnosis of the real economy.

Various economic stimulus packages, such as early government expenditure and continued low interest rates, have been implemented this year, but the economy is showing virtually no signs of an easy recovery. It is quite difficult to cut interest rates any further, while government finances are too vulnerable to spend more. What is desperately needed is the establishment of the most reasonable policy and environment, which will lead the private sector to voluntarily make more investments and consumptions. The government should increase private consumption by lowering the tax burden faced by the citizens, and boost investors’ confidence by immediately lifting various regulations on investments and Metropolitan area developments.