[EDITORIALS] A Lesson to Learn From Japan
World economic trends have taken a serious turn for the worse. In the United States stock prices are diving fast, and the Dow Jones industrial average has already dropped below 10,000. The turmoil has spread to markets everywhere. With the Japanese financial sector in crisis on top of it all, it is hard to foresee where the world economy is headed. Since both the American and the Japanese economies affect us directly, we must be on the alert and make thorough preparations for any eventuality.
The news out of Tokyo that March, the end of Japan's fiscal year, is expected to bring a financial meltdown is as shocking as America's hard landing. Faced with the need to settle accounts by the end of the month, banks in difficulty may call in loans en masse or sell off their holdings of foreign negotiable securities, which could easily lead to a chain of defaults by Japanese corporations and add to the shock waves already roiling through international markets. The Bank of Korea has said that "since Japanese investment in Korea amounts to only about 4 billion dollars, we do not expect the worst," but this situation is not one to be regarded lightly. Considering what happened just before the foreign-exchange crisis of three years ago, we must watch events in Japan very closely and put emergency systems in place, including increasing our ability to pay back any investments or loans that may be called in. Also, finding itself at a dead-end, Japan has little recourse but to allow the value of the yen to fall, which would have a disastrous influence on our exports. The government and business must set up damage control teams to respond to this situation as quickly as possible.
The Japanese situation resembles our own in many ways, so we should regard Japan's current crisis as a lesson from which we can learn. After the bubble burst there, the government busied itself keeping things afloat with artificial market policies instead of restructuring to strengthen the financial and corporate sectors. From 1992, Japan spent 130 trillion yen in financial assistance to troubled corporations and kept interest rates near to zero, but business did not pick up at all and banks and enterprises continued to flounder. As a result, the national debt has reached 130 percent of the gross domestic product, the financial system is paralyzed, and the government has run out of macroeconomic measures to call into play.
We must admit that Korea has been just as bad as Japan in trying to buoy up the economy without proper restructuring. The government has used every means at its disposal, including Korea Development Bank's quick takeover of corporate debt, the provision of public funds, and lower interest rates, nearly exhausting the country's financial resources. Thanks to these measures, the economy has shown flashes of recovery, but there is no telling when we might be in for a fall again. Under the circumstances, we cannot just continue to pour in public funds.
Most recently there has been talk by the government of reducing taxes. In the long term, this is a good way to raise the competitiveness of Korean enterprises and reduce the burden born by the public. However, with the economic situation still unclear and the nation in debt to the tune of 120 trillion won, this should be examined closely to determine if it is really the right move to make at this juncture. If this is just a tactic to boost the economy in the short term or lure in votes for the next election, it is a highly dangerous ruse. Whatever we do, we must not follow in the footsteps of Japan. Japan is teaching us the lesson that in the end there is no way to full economic recovery except pushing ahead with restructuring.