Finance minister should explain why Korean economy is performing poorly

Rumors of a September crisis in the global financial market are intensifying. After China unexpectedly devaluated the yuan for three consecutive days, the crisis theory has it that a global economic crisis could occur if China`s economic slump combines with a possible U.S. interest rate hike expected in September.

The Shanghai Stock Exchange Composite Index plunged 6 percent on Tuesday and 5 percent at one point during Wednesday`s session, following two steep declines last month. The impact from China caused instability in the U.S. and European stock markets but put Korea into a panic, sending Seoul`s main KOSPI index sliding one percent and the tech-laden KOSDAQ index plunging 4.18 percent. There are concerns that an expected slowdown in the Chinese economy could deal a direct blow to the Korean economy.

Oxford Economics, a research institute under Britain`s University of Oxford, projected that a sharp slowdown in China`s economy will likely hit hard Korea among Asian economies highly dependent on international trade.

Global investment bank Morgan Stanley put Korea on the list of the "troubled 10" economies, along with Brazil and Russia that are particularly at risk following China`s devaluation of the yuan. Many Korean businesses will likely suffer from structural difficulties because they depend heavily on China for exports and compete with China for exports.

However, Korea`s Finance Minister Choi Kyung-hwan said the yuan devaluation would have "positive impacts" on the Korean economy, overlooking the fact that the economic structure is changing fundamentally. Participants in the local financial market say that if a September crisis really breaks out, the Korean government`s half-cooked or delayed measures will likely be a problem.

The Korean economy grew 0.3 percent in the second quarter from the previous three months, lower than Greece, Spain and Portugal that are going through economic crises. Korea`s growth rate is also lower than those of other Asian economies such as Taiwan (1.59 percent), Hong Kong (0.4 percent) and Indonesia (3.78 percent), excluding Japan and Thailand whose economies contracted.

In Korea, the youth unemployment rate is all-time high at over 10 percent. Household debts are also at the highest ever, exceeding 1,100 trillion won (930.2 billion U.S. dollars). Seoul`s fiscal deficits are growing due to four consecutive years of revenue shortfalls. Its economic growth rate has remained below one percent for four quarters in a row. The public elected a conservative government for two consecutive terms, hoping it would revive the economy. However, the economy is becoming worse. The finance minister should retract his rosy economic outlook and explain why Korea`s economic performances are much worse than others.