Emergency for Korea, Inc.

Large companies, the pillars of the Korean economy, have entered emergency management mode amid the global economic crisis. According to the Federation of Korean Industries, 92 percent of companies affiliated with the nation`s top 25 conglomerates have begun or are considering implementing emergency management systems. Due to the eurozone debt crisis and global economic downturn, Korea`s exports and domestic demand could falter for a considerable time.

The sense of crisis that companies are feeling almost matches the one felt in the 2008 financial crisis. Exports last month declined by the largest margin since October 2009. Retail sales dropped 0.5 percent month-on-month in June. GDP grew just 0.4 percent in the second quarter, with a negative growth expected in the third. The high earnings performance of electronics and car manufacturers is an optical illusion. Excluding Samsung Electronics and Hyundai Motor, the operating profit of 129 listed Korean companies dropped 44.6 percent year-on-year in the second quarter.

The survey also found that 80 percent of the surveyed companies expect the crisis to continue onto the second half of next year, and perhaps longer. Many companies said they will increase investment and hiring, but cannot guarantee this if the economic slump is prolonged. Construction, finance and shipbuilding companies have disposed of assets and are cutting payrolls. Japanese electronics giant Sharp has begun downsizing in a radical shift from its 100-year policy of lifetime employment. An economic slump will lead to a reduction in income and jobs, worsening the situation. Management and labor as well as the government should join efforts to create more quality jobs in Korea and maintain them.

President Lee Myung-bak should stay on his toes and exert all his strength to reviving the economy until his term ends early next year. His administration needs to plan for the worst-case scenario of economic growth staying in the 2-percent range this year and the business slump lasting through next year. The Achilles heel of the economy is household debt, which has topped 911 trillion won (802 billion U.S. dollars). Preemptive measures should be prepared to prevent falling asset prices leading to rising debt and infection of financial institutions, which could eventually worsen the fiscal situation. The national debt has reached 62.5 percent of GDP while short-term foreign debt has increased for the first time in five quarters. Seoul must manage these debt levels to maintain the country`s international creditworthiness.

Due to the economic downturn, foreign countries will tighten their checks on Korean companies. Trade authorities should also closely response to protectionist movements abroad to protect Korean companies.