[VIEWPOINT]Resolute Action on the Economy NeededWorld history is interspersed with war, destruction and calamity that incurred mass casualties. And depending on the magnitude of the disaster, they have changed the direction of history. The horrible terrorist attacks in New York and Washington will affect the U.S. economy and the world economy.
The people of the world are watching with deep concern how and to what extent these changes will take place. But the effects are not easily measured. In particular, nobody can tell how U.S. consumers, who have greatly contributed to deterring an economic recession in the United States up to now, will react. This calamity is totally different from a transitory natural disaster. Who are the terrorist groups and who are the countries harboring them, which the United States has vowed to attack? How long will the war against terrorism last? These uncertainties make it difficult to predict how the world economy will be influenced by the terrorist attacks.
We can imagine several scenarios in relation to "war against terrorism." The most desirable one is that the United States conducts the war over a very short time in a confined region with international cooperation. The worst scenario is an expanded area of war, perhaps a world-wide conflict, for a protracted period of time after initial U.S. retaliatory attacks are met with a recurrence of terrorist attack virtually expanding the conflict to the entire globe. If the worst scenario comes true, oil prices will skyrocket and international financial markets and foreign exchange markets will be thrown into great confusion, imparting an unbearable shock to the world economy.
Fortunately, the likelihood of the worst scenario happening is remote, taking into consideration the unwavering leadership and swift reaction to the attacks that the United States has shown and international cooperation.
But the calamity will likely hamper the United States' recovery from the economic downturn for at least six months. Before the terrorist attacks on America, the majority of economic specialists projected that the United States could escape falling into minus growth rate for two consecutive quarters, which is considered the official definition of an economic recession. Now the United States may have difficulty avoiding a recession. It is natural that Korea, which had a stake in the early recovery of the U.S. economy, has to assume a larger burden for its economy.
How are we going to overcome all these added difficulties? First, the government's prompt policy response and trustworthy, unswerving exercise of leadership should be aimed at lessening consumer and investor anxiety as much as possible. In particular, the government should turn the sense of crisis widespread among the Korean people into a positive force and subdue selfish group interests and wasteful political confrontations. The government's leadership should also work to garner a national consensus on constructive and productive labor relations.
What we should not forget under any circumstances is that the structural problems of the Korean economy have not changed as a result of the terrorist attacks in the United States. And so the need for the restructuring efforts in corporate, financial, labor and public sectors remains. What's more, to reduce uncertainty within the Korean economy, the restructuring efforts should in fact be expedited. In particular, the problems of troubled companies, such as Hynix Semiconductor, should be resolved as soon as possible. The privatization of commercial banks that have in effect become state-owned as a result of a massive injection of public funds to settle their debts should be pursued in a stepwise fashion.
In addition, to devise a system whereby corporate restructuring can take place uninterrupted, various regulations that pose obstacles to setting up new companies should be abolished and full autonomy should be granted to financial corporations to prevent money from flowing into companies that fail to produce profits.
A host of laws on bankruptcy procedures should be consolidated to expedite the exit of troubled companies and there should be efforts to make the labor market more flexible.
Only when these restructuring efforts reach fruition will there be more investment from domestic and multinational corporations, or at least, the flight of capital abroad could be minimized.
The world economy is at a critical juncture at this point in time. Consequently, it is inevitable that we lower our expectations on the Korean economy's growth rate for the foreseeable future. At the same time, however, we should take full advantage of the global economy, which is expected to turn the corner in the latter half of next year. In order to do so, we should put our efforts into strengthening the foundation for continuous economic growth.
The writer is the chairman of the Institute for Global Economics.
by Sakong Il