Year after fall of Lehman Brothers, Korea stands tall

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Year after fall of Lehman Brothers, Korea stands tall

Exactly one year ago today the demise of Lehman Brothers sent shock waves across financial markets, hitting the global economy like no event since the Great Depression.

Financial systems in almost every open economy were staggered. Many of the companies, big and small, went belly-up. Iceland, Ireland and some Eastern European countries were even driven to the edge of national default.

The International Monetary Fund forecast a 1.3 percent contraction for the world for the year, the first time for a global economic decline since the crisis in the 1930s. Korea, heavily dependent on exports, was among the countries hit hardest.

But time has moved on. For about the past six months, the story has changed from financial destruction to economic reconstruction. And that’s a story in which Korea has taken an increasingly major role. The nation’s gross domestic product grew at 2.6 percent in the second quarter from the quarter before, the fastest on-quarter growth among members of the Organization for Economic Cooperation and Development. Only two quarters earlier, Korea’s GDP declined by 5.1 percent. The benchmark stock index Kospi - that plunged from above 1,470 points early last September to below 940 in October - surged to over 1,600 points this month. In contrast, equity markets in other major economies have only recovered to 80 percent of pre-crisis levels. The strength of the local currency against the dollar, a key measure of confidence among overseas investors on the local market, has improved from 1,570 won in early March to 1,221.8 last week.

“The Korean economy is expected to continue a recovery trend in the second half of the year, helped by improvement in internal and external factors,” said Finance Minister Yoon Jeung-hyun in a release yesterday.

Many experts say that the picture of a resilient economy is thanks to “effective and sizable government policies.” But analysts are wary of declaring victory over the crisis, pointing to lingering issues that could trip things up. Because of emergency spending, the Korean national debt has soared. Corporate investment and the job market still remain in the doldrums. Signs of inflation, including fast-rising housing prices, are coming into view.

“The Korean economy is vulnerable to a shock,” said Kwon Soon-woo, an economist at Samsung Economic Research Institute. “And we still don’t know how it could fare if another shock, either from inside or outside, comes.” But despite the caution, there is little doubt that the past year will be remembered as a roller-coaster ride like few others in an economic lifetime.


By Moon Gwang-lip [joe@joongang.co.kr]
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