[VIEWPOINT]Praise must be put in perspectiveIf economic experts were asked to choose three countries that are examples of different types of economically important nations, they would probably choose the United States, China and Korea. The United States would be chosen among developed nations, the Chinese economy would be selected as the most important developing nation and Korea would be selected as the best example of a burgeoning industrial economy.
While the global economy, including that of the United States, was struggling with stagnation, our economy managed to grow by 3 percent. Our nation's economic growth seemed even more outstanding because Hong Kong, Taiwan and Singapore, the other three Asian dragon economies, all recorded a drop in economic output.
So it is quite common to hear the Korean economy's success praised in other countries. However we must learn to listen to such praise carefully; we must understand the background and the criteria that prompt such praise.
Last week in Washington, annual meetings of leading officials from North America, Europe and the Asia-Pacific region and the Korea-U.S. Council for the 21st Century were held. There were words of praise for Korea from European participants, a sign that Korea is doing relatively well considering that it recently underwent a crushing financial crisis.
Moody's Investors Service, a global credit rating agency, recently upgraded Korea's long-term debt rating by two notches. Still, Korea has a long way to go before it reaches the rating level of developed countries.
During the other meeting in Washington, some American experts on the Korean economy expressed some skepticism about Korea. They were dubious about the transparency of financial statistics and the corporate ownership structure here, despite our continuing corporate restructuring efforts. But again, we must understand that such skeptical views are a result of applying standards used for globalized industrial nations, a status we are aiming for.
Foreign economic magazines have said that the Korean economy is recovering nicely, thanks to strong domestic demand. The steady increase in consumer spending is given the credit for our 3 percent economic growth. Our economy has struggled in exports and in investment in plants and equipment. Consumer spending, which accounts for 60 percent of our gross domestic product, increased by 4.1 percent. That along with spending on construction were the two factors that stimulated the economy last year.
The increase in consumer spending was a result of low interest rates and the wide availability of credit to households; in other words, there is a lot of money out there for consumers to spend if they want to ?and they do. The rise in consumer expenditures also was helped by an expansive financial policy and stimulus measures such as the lowering of the special consumption tax.
The problem is that there is a limit to the growth of domestic demand based only on consumer spending. In the case of Korea, where natural resources are scant, a continued increase in consumer expenditures will end up with a deficit in our balance of international payments. Low interest rates that allow such an increase in consumer expenditures and an easy supply of money will also inevitably become major factors in inflation. Moreover, the increase in household debt ?28 percent last year ?may also bring on a wave of insolvency when it reaches an unsupportable level.
When exports start to rise and private capital spending resumes, and especially when the United States economy also begins to recover, we could see even faster economic growth than the annual rate of 6 percent that we posted in last year's fourth quarter.
It is time now for some fine-tuning of monetary and fiscal policy to ensure that the recovery continues in a healthy way. We must deal properly with the remaining issues stemming from the 1997-98 crisis, such as dealing with insolvent companies and financial institutions.
We must also push forward with the privatization of government-run corporations. We must also take on some new issues, such as a reform of corporate bankruptcy laws.
We must not forget that our ultimate goal is to quickly establish an economy that is the subject of admiration and envy by others not using standards of developing nations but developed ones.
The writer is the chairman of the Institute for Global Economics.
by Sakong Il