[Editorial] Lee Needs Will to Stabilize Financial Market

The U.S. Federal Reserve Board made its biggest rate cut Tuesday in 26 years of 0.75 percentage points in a regular meeting. The meeting came a week earlier than scheduled in an effort to avert a full-blown global stock market crisis.

In Korea, Vice Finance and Economy Minister Kim Seok-dong told a financial policy meeting yesterday, “If the redemption of money from stock-type funds increases, the National Pension Service and other pension funds will make prompt investment, and if necessary, they will quickly provide liquidity to the market.”

Thanks to these internal and external responses, the benchmark KOSPI stock index rose 1.2 percent yesterday after suffering from a downward spiral.

The ripple effect of the global financial jitters, however, will not easily subside. Investment mogul George Soros calls it “the greatest financial crisis in 60 years.” The expectation of a further U.S. rate cut of half a percentage point attests to the seriousness of the situation.

Stock market stability is closely tied to strong consumption and business investment. The U.S. subprime mortgage crisis has dampened the American stock and real estate markets, sending shockwaves throughout the world and deepening worry over a global recession.

If we cannot ease the impact of a worldwide financial crisis on the Korean stock market, this will lead to increasing money redemption from stock-type funds, a further drop in consumption followed by shrinking investment and unemployment. This will eventually result in economic malaise.

Weak U.S. consumption will also likely shrink exports and growth of developing countries such as China. Korean exports, the driver of the national economy, will be adversely affected. The current account is projected to finish in the red this year after ten years of surplus, and the scope of the deficit will grow further with the sluggish economy.

President–elect Lee Myung-bak said, “I am worried that the incoming government will face an economic crisis within one year of its inauguration.” Thus the incumbent government and the president-elect need to join forces to reduce economic destabilizing factors. Korea should also closely cooperate with other countries on interest rate cuts, and the leadership must closely check conditions of the financial and real markets.

Difficult economic conditions at home and abroad all the more necessitate policies to deregulate and stimulate business investment. To start, President-elect Lee needs to show his willingness to provide and implement effective measures to stabilize the financial market.