[VIEWPOINT]Lots of scenarios, mostly badDespite the great concern that the presidential impeachment would drive our county into crisis and that our economy would collapse, the Korean economy is still managing to work.
In fact, a substantial number of economists, including this writer, predicted that although the impeachment would cause uncertainty in the financial markets, it would not have great impact on our economy. From a market economy perspective, the trend of increased exports was not likely to falter quickly thanks to the obvious recovery of the world economy.
Also, concerning the domestic sector, investment was not likely to shrink suddenly in the aftermath of the impeachment because most businesses were already delaying their investments until after the legislative elections and the end of the investigations into illegal campaign funds. And spending was no longer likely to decrease, because it had already hit the bottom.
What is important is financial markets. In the short term, they will surely fluctuate. But as all other systems will work normally, there are no reasons for financial markets to worsen unless there is other bad news beside the impeachment. Immediately after the approval of the impeachment bill, stock prices, the interest rates on foreign exchange stabilization bonds and the exchange rate blipped momentarily and then quickly returned to normal.
What concerns us now is the direction of our economy after the impeachment crisis is over. The prospects vary, depending on the assumptions one makes.
First of all, if the impeachment is approved by the Constitutional Court, albeit the chances are slim, there will be large demonstrations and sympathy strikes by labor unions. There is also a high chance that in the short run our sovereign credit rating would drop and considerable economic uncertainty would follow.
But on a medium- and long-term basis, depending on how fast the situation settles down, the economy could go either way.
If the impeachment is rejected by the Constitutional Court, the economic prospects will depend on the results of the Assembly elections. First, if Our Open Party wins a majority in the National Assembly and if the “participatory government” admits its mistakes in its governance over the past year and fundamentally changes its policy direction, investment by domestic and foreign businesses would revive and consumer spending would recover. And our economy would be able to recover.
But if the ruling camp shuns responsibility for economic problems, as President Roh did in a press conference before the impeachment bill was passed; and if, armed with an absolute majority, it tries to strike down the press and the anti-Roh groups and pursues excessively liberal reform, the economy of our country will go into an uncontrollable tail spin.
Second, if the ruling party cannot secure a majority but becomes the largest party at the Assembly, and if the government changes its attitude, tries to promote national unity and maintains cooperative relations with the opposition parties, investment and spending will recover. If the government adheres to its previous manner of national administration, investment and spending will not recover and the economy would be still unable to escape from its chaos.
Third, if the ruling party secures more seats than now but cannot become the largest party, and if it cooperates with the opposition along with a change in policy, investment and spending will recover to a certain degree, albeit less than in the previous two cases. But if the party changes its policy but continues to maintain hostile relations with the opposition party, economic uncertainty will continue as before the passage of the impeachment motion. If the ruling party does not change its policy at all, the economic situation will plunge into crisis.
These scenarios suggest that, in order for our economy to recover in earnest, the president and his administration need to change the basis of national administration fundamentally after the impeachment crisis is over. In other words, they should devote themselves to revitalizing the economy and creating jobs by removing factors of political and social uneasiness, which are the fundamental causes for economic difficulty, and by carrying out growth- and competition-centered economic policies. They also should continue to pursue political reform through laws and institutions and take the attitude of uniting the whole nation that denies picking sides and embraces all classes, including the opposition party, the press, and the conservative establishment.
The government has recently announced a series of short-term economic stimulus measures, including a cut in the special consumption tax; early spending of this year’s budget and the preparation of a supplementary budget after the legislative elections; tax benefits to service industries; measures for delinquent card holders and support for job creation. But if the economy does not recover fundamentally, these measures will do more harm than good and increase the budget deficit.
The government should be aware of the fact that these make-shift steps would only repeat the failures of the past year if they are not accompanied by fundamental changes in national administration.
* The writer is a professor of economics at Hanyang University. Translation by the JoongAng Daily staff.
by Na Seong-lin