Tackling economic challenges

The government is trying hard to avert a catastrophe due to drastically slowed consumption and decreased exports. At a meeting attended by the country’s economic ministers, government officials came up with the idea of reducing the individual consumption tax for car owners, available for a limited time until December. The measure means car buyers can save as much as 580,000 won ($477) in taxes when they purchase a Hyundai Sonata, a popular model among the middle class.

The government’s decision to bring back the tax cut after just a month reflects the trouble our economy is in - especially considering the prolonged reduction in consumption and the 18.5 percent drop in exports in January year on year. The shift bodes ill for our economy, with domestic demand and exports both shaky amid a global recession.

The trouble is that the government has few policy tools available. As a last resort, the government has decided to draw up a 14 trillion won budget in advance, but that’s not likely to turn the economy around in any significant way. The government is only using the money earlier than scheduled, not releasing additional money into the market.

The implementation of expansive fiscal policies is necessary when the economy plunges, but the government cannot provide a supplementary budget due to gargantuan debt amounting to 600 trillion won. Plus, the government can’t weaken the won’s value amid the heated currency war among the world’s economic powers.

Moreover, Japan’s decision to lower interest rates to below zero for banks and other financial institutions has forced Korea to wrestle with the repercussions. Considering deepening concerns about the possibility of deflation, the Bank of Korea must play a more active role in revitalizing our lackluster economy.

The government must also find ways to cope with our economic crisis in the short term while devising measures to strengthen industrial competitiveness in the longer term to prepare for a prolonged slump in consumption and exports. The Ministry of Trade, Industry and Energy plans to send trade promotion delegations to our major trading partners 109 times over the first half of this year. But unless it is backed by the strong competitiveness of our products, the government can hardly expect successful results.

When our economy faces a tough time like this, the government and private sector must not delay desperately needed restructuring and reform. The government has to remove obstacles in the corporate sector, and companies must aggressively tackle challenges through bold investment rather than shrink away from them.

JoongAng Ilbo, Feb. 4, Page 30