[VIEWPOINT]Supporting Actors Play a Different Role

The terrorist attacks on American soil have created in the minds of the Korean people a gloomy picture for the future of their economy. Current opinion runs that the recovery of the U.S. economy, which is essential for the Korean economy to escape the downturn, will be protracted due to the recent calamity and fears of imminent war.

The South Korean government is in a hurry to come up with measures, such as an interest rate cut and supplementary budget, to prepare for an economic recession. Some officials and scholars voice a more active economic boost at the expense of a deficit in the national coffer.

The United States is expected to carry out active economy boosting policies like downward readjustment of bank interest rate and expansion of the federal budget in the wake of the disaster. It is easy to hold that we should also adopt economy boosting policies in terms of macroeconomics. But it is not reasonable for us to follow such policy options. Who between a leading actor and a supporting actor plays the more difficult role? An actor performing well in each of these roles would imply that both roles might be equally difficult. Depending on the role and the situation, the supporting actor's role could be more difficult than that of the leading actor, as the former should act in compliance with that of the latter.

As war is portended, whatever be its size, the uncertainty of the U.S. economy has become larger than ever. But, also, options for a suitable economic policy have become clearer. The cloud of war is forcing the United States to opt for short-term measures. Before the terrorist attacks, the United States had to take into consideration the long-term perspective involving a huge budget surplus, the effect of a tax cut and balance the effects among social strata. In this new condition, the United States is highly likely to concentrate on boosting the economy for now. It may be less burdened than before in weighing the side effects of an interest rate cut.

What about the Korean economy? The economic environment has become more uncertain and choosing an appropriate economic policy has become more difficult. U.S. stock prices reflect the shape of the U.S. real economy. But Korean stock prices are influenced by the fluctuation in U.S. stock prices as well as the Korean economic outlook. This adds confusion to the Korean market.

In this situation, the South Korean government should not simply imitate the United States in devising measures to boost the economy. If Korea implements measures similar to those in the United States, it may incur another policy failure. When the domestic economy began to cool off last fall, the majority of economic experts asked the government to control markets through an interest rate cut instead of through fiscal policy with its big time-lag. People who have studied in the United States may be familiar with this assertion.

Surprisingly, some people called for a tax cut, citing the U.S. tax cut policy. At the time, economic uncertainty prevailed and a financial crunch was forming due to the delay in restructuring and controversy over additional government spending. But how many businesses would make more investments in plant and equipment if an interest rate cut were introduced? How many consumers would buy a brand-new car if there were a tax cut? Not many. There was a time when traditional price-inducing policies demonstrated limits. I have not mentioned the imprudence some people displayed when comparing the Korean national coffer, which should raise concerns on the burden from new government spending, with the U.S. national coffer, which was drawn down by a tax cut to reduce the budget surplus.

I wonder how much our economic environment has changed in the past one year. Insolvent conglomerates have dragged out their life spans with expedients. Financial restructuring has disappeared behind the financial holding companies and bank mergers. The government still sticks with a short-term goal of a balanced budget in 2003, even though fiscal pressure from government financing of public funds looms. The regulations that barred entrepreneurs from advancing into new business sectors still exist. Few things have changed since then.

Destruction in the economy signifies the start of new creation. The U.S. economy may find itself at a turning point in the wake of the disaster. We also have to find a way to turn a crisis into opportunity. But this cannot be done if we follow the path that the United States will walk. I am not opposed to appropriate economy-boosting measures. The government should redraw the macroeconomic policies governing the blueprint of restructuring and deregulation reform. In the end, supporting actors must make several times the effort of leading actors to shine.

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The writer is a professor of economics at Ewha Womans University.

by Chun Chu-song