[EDITORIALS]Solving the Economic Puzzle

With the hints of emerging stagflation, Korea's economy seems to be between a rock and a hard place. In the first quarter, consumer prices soared 4.2 percent, already over this year's goal, while exports shrank for the first time in two years, recording a 0.6 percent decrease. Since exports account for over 50 percent of the contribution to economic growth, concerns are rising whether an economic recovery in the second half of this year will be possible. The government should not leave the falling won unattended, even if such action may restore competitiveness in exports. This trend may undermine the keystone of stabilized prices; speculative demand driven by psychological factors played a role in the recent surge in the exchange rate. The government is in a dilemma between stimulating the economy and stabilizing prices: If it intervenes hastily, exports may be dealt a blow.

There are few policies available. The global economic downturn and the increasing fickleness of international capital are external factors Seoul cannot do much about. Besides, with delayed corporate restructuring and perennial uncertainty, the lowering of interest rates is unlikely to have a real impact; rather, it may trigger a long-term recession in the style of Japan. There is little room to maneuver with revenues because most have been spent. Even if a supplementary budget is drawn up, it will be difficult to secure money to stimulate the economy because of needs like disaster relief and health insurance.

In a situation where the most renowned wizard would be hard put to find a solution, an approach based on principles should be the best one. First of all, the government should prepare measures for different scenarios as it watches international and domestic economic conditions. Then, it must prepare for as many different contingencies as possible. What is of greatest importance is confidence in the government. Without the people's trust, the government will have a difficult time combatting popular reactions to hard times, be it a refusal to spend or demands for wage hikes. The gravest problem of the government is a lack of ability to attract its citizens' trust.

The situation has deteriorated because the government is not seen to be taking the lead in solving problems. When people trust the government, the current economic crisis can be resolved.