Posted August. 01, 2009 07:33,
The economy in the first half of the year was sustained by government spending. Mining and manufacturing production has grown for six straight months, consumption and facility investment for three consecutive months, and the average operational rate for five consecutive months through June. Early implementation of the budget has clearly produced results.
The national budget, however, is tax money and growing fiscal spending will burden the people. The International Monetary Fund yesterday said Korea is one of eight countries whose budget deficits have recently ballooned and who need to reduce public spending. With 167.1 trillion won (135.9 billion U.S. dollars) spent in the first half, far larger than that spent last year, the government has just 101 trillion won (82.2 billion dollars) remaining for the second half.
To sustain growth momentum, the private sector must expand investment. Corporate investment is the fundamental solution to ease the shock stemming from the expected phenomenon of jobless growth. Facility investment grew 6.3 percent in the second quarter from the first, but dropped 13.7 percent from the same period last year. This means more needs to be done to achieve full recovery.
Domestic machinery orders in the public sector grew 30.8 percent from the same period last year, but those in the private sector dropped 14 percent. The public sector saw construction orders skyrocket 186.5 percent, but the private sector saw a fall of 62.4 percent. If private investment remains weak, improvement in indices for production, consumption and inventory will not translate into robust recovery.
Risk aversion by businesses will backfire since the economy could contract again. This is why certain businessmen have expressed fears over the disappearance of entrepreneurship. Along with investment expansion, companies should make the most of measures to raise domestic consumption presented by the government, such advancement of the service industry.
To substantially prop up domestic consumption, both the government and political circles should support business more aggressively through deregulation and a more pro-business social environment. Public grassroots policies are laudable, but populist policies and comments detrimental to business should be avoided. Sticking to a business-friendly principle is ultimately conducive to the peoples welfare.
The government, political circles and people from all walks of life must join forces to create a favorable environment for investment, and companies need to actively invest. If everyone plays their respective roles, the countrys potential economic growth, which fell to the three-percent level, will rise again and well-paying jobs will be created.