[VIEWPOINT]Only Restructuring Can Save Us Now

The government is planning more pump-priming following similar economic expansionary steps early this year.

This time, the government insisted that the policy will be measured, but in essence what is on the menu for the sagging economy this time is the same as that presented early this year. Seoul will advance the timing of budget outlays, put more pension funds in the stock market and reduce taxes to encourage investment. Despite all the talk about caution this time, the two plans seem exactly the same except that the new plan predicts that the economy will turn upward not during the second half but at the end of the year, with the assumption that the U.S. economy will recover during the fourth quarter.

This expansionary policy, announced at a time of mounting domestic economic uncertainty, will lead to even more economic problems. Most economic observers already know that the pump-priming policy early this year had no tangible results. More expansionary measures will further reduce confidence and make the flow of capital into stock and investment markets more difficult.

Furthermore, prices are rising even faster than at the beginning of the year. Consumer prices rose 4.7 percent in the first half, making it more likely that inflation will exceed the 4 percent target for the year. Price increases in the first half were triggered by cost factors such as increases in service and public utility charges. A rash expansionary policy can also raise demand and trigger price increases. That might be a fatal blow to our economy.

Economists are similarly skeptical about the new steps being planned. As the market opens up and the economy turns digital, the influence of government policy is diluted. It is also extremely difficult to come up with measures to revive the economy while keeping price increases under control.

The government can do nothing more than set out the rules of the game and play referee.

Restructuring is the only way to improve the competitiveness of our economy and establish a firm foundation for growth. Only decisive and sustained restructuring across all sectors can nourish an economy that is still weak after the foreign exchange crisis. Reckless expansionary measures will keep failed companies and banks alive － no matter whether the policy is "limited" or not.

Look into the details of the announced policy and you will feel more uneasy. Early spending of the national budget will fundamentally disrupt efficient budget management and eventually make the deficit swell. Investing pension funds in the stock market will hinder the sensible, balanced management of surplus funds, and, of course, further increase investment risks. Stimulating investment by reducing taxes may result in taxes being curtailed long-term, lowering tax revenue and creating new problems for future national financial managers.

It is time to accelerate restructuring. Problems at Daewoo Motor, the Hyundai Group and Seoul Bank have not yet been resolved. Slowing restructuring down at this point will lead to lingering uncertainty, further destabilizing our economy.

We can no longer endure political and social conflict. The bitter confrontation between the ruling and opposition parties, between the government and the press, between conservatives and liberals, and among interest groups overshadows everything else. In the din, the voices calling for restructuring to recover our national competitiveness have been drowned out.

The elections next year will probably mean more shackles on restructuring and economic recovery. Relying on expansionary policies alone, without restructuring and amid these political and social conflicts, we have only one policy choice － to pray.

Let us pray that the U.S. economy turns upward, that the Argentine financial crisis bypasses us, that oil prices stabilize and that semiconductor prices go up.

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The writer is a professor of economics at Sungkyunkwan University.

by An Chong-bum