[FORUM]Fearless forecasts and bad policy

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[FORUM]Fearless forecasts and bad policy

This year was a very disappointing one in terms of economic performance. This year’s growth rate estimated by the Bank of Korea was 2.9 percent. Over the past 40 years, no years were worse than this year except for 1980, when oil price fluctuations and harm from cold weather took the country by surprise amid political turbulence, and 1998, immediately after the financial crisis.
What embarrasses the government is that there are no excuses to make such as international conditions, so that it cannot avoid being held responsible for the economic failure. The international environment was much better than originally expected. The war in Iraq ended quickly and the North Korean nuclear problem did not worsen. Exports increased by 16 percent compared to those of last year.
The Korean economy has so strong a dynamic that even with ordinary external conditions it could make great progress. Many people wonder or deplore why the economic performance is so disappointing despite the improvement in international conditions. Some senior professors call the present incomprehensible economic situation the “Roh Moo-hyun doldrums.”
There is another strange thing. Although business is very bad and the youth unemployment rate has reached 8 percent, the people still do not reproach the administration severely. So the government shows no sign of reflecting on its economic failure. The reasons can be found in four phenomena.
First, the people are now lost in the fantastic political show. Constant disclosures of corruption scandals of politicians and unexpected declarations are sufficient to get people to criticize the government and politicians, so that there is no time to talk economics.
Second, the present administration’s trial-and-error policies, which raised real estate prices across the country, have had the effect of easing the sense of crisis for those who own real estate, however small it might be. The “haves” are too happy to blame the administration and the “have-nots” are too weak to call for it to take responsibility.
Third, there are plenty of people who already have received substantial pay increases despite the economic conditions. Public officials, employees at state-run corporations, financial institutions and large companies where strong labor unions reign: All might have little desire to accuse Seoul of not fighting a recession as their salaries are raised.
Fourth, many college graduates seem to blame themselves for their failure to find jobs. Also, they pin their hopes on a number of examinations for executive official positions, so they seem to have no desire to find fault with the government.
These undesirable phenomena will not last long. There is a ray of hope for next year, when the government reflects on its failure to operate the economy properly and puts some effort into reviving it before the nation is awakened and rebukes the administration. Last week, the Bank of Korea predicted that our economy would grow 5.2 percent next year. That is a very optimistic forecast, not because it is a much higher figure than this year’s, but because of the premises of the forecast. The Bank of Korea admitted that uncertainties will still remain next year, including labor-management conflict, financial instability and the North Korean nuclear problem.
Its prediction is that if these political and social uncertainties “do not become worse than this year,” about 5 percent growth will be possible.
In my opinion, however, there are no reasons for the economy to recover if these uncertainties “do not improve.” As the growth rate of major countries increases, so will their exports. But their increase will be slower than this year. The construction boom, which has sustained our economy together with exports, is expected to wither away.
The administration has enjoyed political games more than economic ones and avoided difficult problems, putting words before deeds. If there is no change in its behavior, the uncertainties will inevitably worsen, and spending and investment activities will continue to shrink. The recovery depends on the government.
The president and his economic team should wrestle with two issues, labor-management relations and credit card problems. Then next year’s growth rate might be much higher than the central bank estimate.

* The writer is the director of the JoongAng Ilbo Economic Research Institute.

by Ro Sung-tae
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