Time to wake up

The government chooses to stay in self-denial despite loud and obvious alarms about the Korean economy. It claims the economy is recovering well even as data points to the opposite.

The Organization for Economic Cooperation and Development’s (OECD) composite leading indicator suggested a receding Korean economy with a reading at 99.2, hovering below the 100 threshold for the fourth month in row. Korea’s indicator has been skidding since registering 101 in March of last year. The last time the indicator was in a downturn for so long was the 20-month losing streak from September 1999 and April 2001, following the dotcom bubble in the United States.

The OECD leading indicator in retrospect had been the most credible harbinger of a crisis. When Korea’s indicator went south for a lengthy period, it was followed by a financial crisis of major levels like in the late 1990s and 2008 as well as the credit card crisis in the early 2000s and a domestic slump in 2012.

The semiconductor front which has been the most reliable fortress for the Korean economy is shaking. The prices of dynamic random access memory and NAND flash memory chips have fallen around 10 percent from the beginning of the year. Chinese players are making fast strides. China’s YMTC announced it would start mass-producing NAND flash memory chips from next year. Samsung Electronics is said to be readying a defensive posture to protect its leadership in the chip market. Share prices of Samsung Electronics and SK Hynix fell sharply after leading investment banks downgraded growth prospect for Korean chipmakers.

The external front is also rocky due to the trade war between the U.S. and China and the pace of monetary tightening by the U.S. central bank. The woes of the emerging markets are spreading fast with the Turkish currency, the lira, plunging 70 percent this year.

The captains are carefree in the calm before the storm. In a monthly report for August, the Ministry of Strategy and Finance maintained that the economy was recovering steadily led by strong exports. But jobs are thinning fast in shops and buildings are emptied. Both small businesses and bigger companies are struggling. Yet the government goes on flagging optimism and presses on in its direction.

It is imperative to unite wisdom and endeavors to improve the country’s fundamentals and build resilience against a looming crisis. Policymakers must free themselves from slogans and accelerate deregulation and labor reform to encourage companies to invest, increase jobs and raise productivity. Ideology does not help a sinking economy.

JoongAng Ilbo, Aug. 13, Page 30