[Editorial] New Economic Structure Needed

U.S. Federal Reserve Chairman Ben Bernanke said Monday that Asian countries should boost domestic consumption, citing global trade imbalances. He said the Korean won has partially regained its value after falling 40 percent against the U.S. dollar from early last year through March this year. His comment signals U.S. pressure on Korea and China to reevaluate their currencies.

A strong won will deal a blow to Korean exporters. The Korean currency yesterday gained about 20 percent to close at 1,165.90 against dollar, up from 1,400 at the end of March. The U.S. will probably seek more appreciation of the won, but Korean exporters are having a hard time making ends meet. A survey conducted by the Korea Chamber of Commerce and Industry found that a fourth of manufacturing exporters have earned no profits due to the surging won. Unlike large corporations, which have technological competitiveness, small and medium-size exporters are vulnerable to the strong won. Fortunately, they are making up for their losses thanks to a strong Japanese yen, which affects Korea’s exports more than the dollar.

Many say the Korean economy relies excessively on exports. The International Monetary Fund said last month that slowing recovery in the U.S. and Europe, two of Korea’s major export destinations, will pose significant risks to the Korean economy. An export-driven economic recovery will not last long. If major economies end fiscal stimulus measures and implement exit strategies, the pace of Korea’s recovery will slow due to declining exports. Whenever the country faces a crisis triggered by external shocks, voices urge stimulation of domestic demand to match the size of the economy. Nothing has changed, however.

West Texas intermediate, the benchmark oil in the U.S., has risen 14 percent over the past eight days to almost 80 dollars. Korea’s economy will be hit hard if the value of the won, oil prices and interest rates rise simultaneously. Against this backdrop, warnings of a double-dip recession loom. In a survey of 55 major corporations conducted by The Dong-A Ilbo, 59 percent said they expect a double-dip contraction after next year. A survey by the Federation of Korean Industries last month showed two thirds of economists say a double-dip recession is indeed possible.

Bright prospects also exist, however. Thanks to deregulation and corporate competition, the size of the service industry has expanded and the number of jobs has grown. An influx of medical tourists to Korea has also provided more good news. It is high time to revise growth strategies to revive the lackluster service industry and reform the economic structure to boost domestic demand.