[EDITORIALS]Argentina Should Be a Warning

Economic woes in Argentina are growing serious. Immediately after Standard and Poor's cut the country's long-term sovereign credit rating on Thursday, the currency values of Argentina and neighboring countries plummeted. Markets have been concerned for several months about a possible default by the Argentine government on its foreign debts of $130 billion. Now, the nightmare seemed to be coming true.

Korea once suffered from a foreign exchange crisis due to a slashed international credit rating based on concerns about a default on foreign debt, so we understand the seriousness of the Argentine crisis. Fortunately, the Argentine economic woes have had only minimal effects on nearby countries. There is no sign that the U.S. stock market, which sustains the Latin American economy, was damaged by the crisis.

But we should not relax too soon. There is still a danger that Argentina's economic woes can have an direct impact on Korea. The crisis could also spread to East Asia through financial markets directly related to the South American economy, including the United States. The ability of East Asia to counter another regional economic crisis was lowered by the 1997 economic crisis. The International Monetary Fund reserves are nearly exhausted, making it difficult to support countries in overcoming another crisis. The bright U.S. economy, which contributed to reviving the shattered East Asian economies, can hardly be a savior again this time.

That is why international markets have no confidence in the Argentine government's plan to eliminate its budget gap, despite the promise of international support of $40 billion. Our foreign exchange reserves are stable and our trade balance is in the black, so Korea will probably not see another foreign exchange crisis, but we have to keep in mind that our financial and foreign exchange markets are more open to speculative foreign money than ever before in our history.

The Argentine government's possible foreign debt default is the direct reason for its current economic crisis, but the root cause is the Argentine government's lax management of its national finances. That should be an important lesson for us.

In the process of structural reform and establishment of social safety net, our public finances became unbalanced. We should reconfirm our will to bolster the soundness of our own public finances.