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[EDITORIALS]Let's Not Use the Wrong Medicine

Published: 05 Jan. 2003, 17:50

Korea's central bank revised its economic forecast for the year, braking optimism about a second-half recovery. The Bank of Korea lowered its estimated economic growth rate from 5.3 percent to 3.8 percent, and raised the rate of consumer price increases from 3.7 percent to 4.4 percent. Such revisions indicated that the outlook on Korean economy is gloomier than the rather optimistic forecast of late last year.

The central bank forecast is also lower than the government estimate of 4 percent growth, and its predicted rate of price increases is higher than the government's 3 percent prediction. Conditions are not so bad, however, that we have to worry about stagflation even if the Bank of Korea's forecast is realized. Other economic researchers still see 4 to 5 percent economic growth, higher than the central bank forecast, but the differences in the forecasts are not large, given the guesswork that attends such predictions.

What we fear, though, is that these forecasts could lead the government to stimulate the economy. Even though this year's growth will almost surely be below the 6 percent theoretical potential of the economy, and concerns about a hard landing are not fully dispelled, this year's low growth is fundamentally caused by a delay in restructuring and a slow global economy that slowed exports. Seoul should not focus on artificial stimulus of domestic demand, which would damage our economy even further. It should instead focus on reinforcing our competitive power to overcome the root causes of our problems. The government and ruling party's recent economic policy － tax reductions, earlier allocation of a supplementary budget and excessive support measures for the construction industry － is worrisome. If the central bank's forecast is accurate, this year would be the second time that exports decline year over year, and would prove that the government is not helping private companies or supporting new industries, two measures that would help us reach our potential growth. The government should work harder to stabilize financial markets and to ease regulations in general to spur private investment.