2 Economic Officials Debate over Double-dip Recession

The former and incumbent finance ministers of the Lee Myung-bak administration are showing contrasting views on the direction of the Korean economy.

Kang Man-soo, who was President Lee’s first economic chief, warned in a speech to the pro-business lobbying group Federation of Korean Industries yesterday that a double-dip recession is inevitable.

Kang is now special presidential adviser for the economy and chairman of the Presidential Committee on National Competitiveness.

The day before, his successor Yoon Jeung-hyun told the National Assembly that economic growth will be on a slow but continued rise, dismissing the prospects of a double-dip recession.

This was not the only instance in which the two men disagreed over economic prospects. In July, Yoon made a series of comments suggesting that the administration will retreat from its policy of tax cuts as designed by Kang when he was finance minister.

While Yoon retreated by saying the administration will maintain its tax cut policy, he and Kang are again showing differences on economic outlook.

In yesterday’s speech, Kang was quite critical of the Korean economy, warning that if the administration implements an exit strategy, it will offset the effects of fiscal policy and consequently cause a recession.

If not, he added, the economy will see a double-dip recession because of inflation.

Kang said the global economy will never see a return to its old days, predicting at least two years of recession.

When asked by ruling Grand National Party Rep. Lee Hye-hoon on whether Kang’s forecast for a double-dip recession changed his view, Yoon flatly said no.

At a news conference with foreign correspondents in Seoul, Yoon also suggested a symbol resembling the Nike logo or the square root symbol “√” to predict economic recovery, expressing a far more optimistic view on the economy than Kang.

Kang and Yoon also disagreed over corporate earnings. Without a weak Korean won, Kang said, the record quarterly earnings by leading Korean exporters such as Samsung Electronics and Hyundai Motor would have turned into their biggest losses in history.

Korea was the only country in the Organization for Economic Cooperation and Development to post positive quarterly growth this year, but this was because of the weak won and fiscal policy effects rather than corporate investment, he added.

Kang said the reality for the Korean economy is not “surprise earnings” but “minus surprise,” urging industrial restructuring and labor reform.

By contrast, Yoon told the National Assembly that a weaker won helped improve corporate profitability but that it was not all.

Experts recommend that the incumbent economic team pay attention to Kang’s opinions, saying his comments should be taken as a warning against little progress in industrial restructuring and labor reform.

cha@donga.com nex@donga.com