[EDITORIALS]No cheers for economyThere is a saying that light is usually followed by shadow. As the World Cup nears an end, an alarm bell has gone off for the Korean economy. While the seas of red-clad Koreans are still celebrating their soccer squad's achievement of becoming the first Asian team to advance to the semifinals, a red light has been turned on for the local economy because the local stock prices and the won-dollar exchange rate are plummeting, with exports slowing rapidly. In particular, domestic share prices, which Wednesday suffered the biggest single-day drop since the Sept. 11 terrorist attacks on the United States, reflect deteriorating economic conditions at home and abroad, warning of a bumpy road ahead for the rest of the year.
Under such circumstances, the government has announced economic plans for the second half and post-World Cup measures. But we find those plans too optimistic, although they were drawn up earlier. The government has put the focus of its economic policies on "a stable and balanced growth" on the premise of its optimistic outlook for the economy. It has raised its economic growth forecast for this year to at least 6 percent from its earlier prediction of 4 percent. It has raised the growth outlook while leaving the inflation and current-account targets unchanged, because it believes that Korea's exports and investments will recover in earnest starting next month.
Just one month earlier, such projections and measures would have faced little disagreement. At that time, the dominant view was that the local economy would grow rapidly this year, unless there were external shocks, because economic indexes in late 2001 were in such bad shape.
But now, external shocks are spreading rapidly, as the U.S. economy is suffering from a slumping recovery and huge trade deficits, with the value of the dollar and stocks sliding in the wake of economic crises in some Latin American countries. Such external factors have already hit the Korean economy, sending local share prices plunging, the won-dollar exchange rate soaring and exports tumbling.
The post-World Cup plans also reveal that the government lacks a sense of urgency in its perception of the changes in economic conditions. Seoul hopes to capitalize on the Korean soccer team's strong performance to help make Korea one of the world's eight biggest econo-mies. But many of the government's plans seem impractical. For instance, the government plans to raise Korea's export prices by 10 percent by capitalizing on the rising country image, thanks to the World Cup. The soccer event did help much to improve Korea's national image, which may add more economic value to the country's export products. But the value of the won has gained nearly 10 percent against the U.S. dollar over the past couple of months, making Korea's exports more expensive. We are concerned that another 10 percent hike will hurt the price competitiveness of Korean products shipped abroad. Such a plan reminds us of the government-led campaign five years ago to increase competitiveness by 10 percent, turning a blind eye to the local economy's structural woes.
The government should not change its economic policies according to short-term fluctuations in market indicators. Considering Korea's increased dependency on external factors, the government should strengthen its ability to manage risks and cushion shocks from overseas. In particular, it should be very careful about managing major macroeconomic factors such as the won-dollar exchange rate and interest rates. We can expect to pick the fruits of the successful World Cup only when the local economy remains in good shape.