[EDITORIALS]Think twice before actingThe financial earthquake that is pummeling the United States is also shaking the global economy. The plunge in U.S. stock prices and the weakening of the dollar is sending jitters through the financial markets and real economies of Korea and other countries around the world. Experts are divided over the future of the world's largest economy. Some are optimistic that U.S. equity prices will recover, thanks to the healthy fundamentals of the U.S. economy, while pessimists think that the current turmoil will lead to another Great Depression like that of the 1930s.
The Korean economy, which is highly dependent on overseas conditions and has just entered a recovery, should brace itself for shocks from overseas in a worst-case scenario. The Korean government plans to hold an economic ministers' meeting Wednesday to discuss emergency measures, including boosting domestic consumption.
But the government should calmly look for step-by-step measures rather than changing its policies hastily. As the bad news from the United States is limited to the financial sector, Seoul should put its policy focus primarily on stabilizing the local stock and foreign-exchange markets. It is more important to keep its policies coherent and enhance corporate transparency so that the financial authorities and businesses do not lose investors' trust, as was the case in the United States.
For the real economy, the government should be careful. If it tries to boost consumption out of fear that exports will slow, there will be some important side effects. The local economy has been driven by domestic consumption and construction and services industries recently, and that has fueled inflation and real estate prices. Attempts to further expand consumption may exacerbate economic instability, hurting Korea's balance of payments.
If the economy does turn down significantly, Korea should take advantage of this opportunity to improve its competitiveness by pushing for further restructuring and seeking to curb wage increases and inflation. That is the way to rekindle exports.
Economy-boosting measures should be used as the last resort if and when the U.S. economy and local consumption are in danger of shrinking drastically.