Measures Needed to Adjust to Rising Oil PricesSoaring oil prices are casting an ominous pall on the Korean economy. The price of West Texas Crude, a mid-range quality oil, exceeds $35 a barrel, while Dubai crude, Korea‘s main supply of oil, has topped the $31 point for the first time since the Gulf War. Even if OPEC decides to increase output on September 10, prices are expected to remain high for some time. The gravity of the situation prompted President Clinton to warn about the possibility of a global recession caused by the steep prices. As it is, Korea is struggling from blunted economic growth, rising prices, and sluggish exports. Because the rise in oil prices is likely to deal a heavy blow to the Korean economy, urgent measures are called for.
The government insists that high oil prices will not affect macroeconomic factors, such as prices and growth, because domestic oil prices already reflect the higher international prices. Nevertheless, for a country that has to import every drop of its oil, the impact of a steep rise in oil prices is bound to be weighty. Considering that a one dollar increase in oil prices effects a $1 billion setback in international balance of payments and a 0.27 percent point increase in consumer prices, the recent surge calls for careful preparations. The government needs to adjust the Korean economic framework to an era of expensive oil.
Conserving energy is the only feasible response at hand. Efforts should be expended to make the industrial structure energy-efficient. The government held an urgent Economic Ministry meeting yesterday and put forward some measures, including an expansion of tax benefits for investments in energy-saving facilities. Although rather belated, these measures are essential.
Oil prices should be raised to discourage waste as long as the hike does not excessively burden business activities and the everyday lives of ordinary citizens. Practical and concrete plans should be introduced to encourage all Koreans to conserve energy. These plans must be carried out on a permanent basis.
Energy aside, the government should work to establish fundamental policies in various economic aspects, like banking, prices, exports, and the gap between rich and poor. The government insists that the economic crisis is over, but the atmosphere of everyday life for the general public has not improved much from the IMF (International Monetary Fund) supervision days. The confidence of both consumers and businesses has been shaken. This affects consumption and investment, further contracting economic activities. The sinking cycle engenders a sense of crisis.
Worries about the onset of another really serious crisis are rising. The government should realize that the big picture is not reflected by the buoyant indices produced by its bureaucrats. They should stop complaining about ‘exaggerated pessimism’ and earnestly assure people that they are dealing with things in the right way. Only then will they secure the trust of the people and the stability of the market.
by Hwang Se-hee