[OUTLOOK]A crisis by any other name

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[OUTLOOK]A crisis by any other name

It is meaningless to debate whether we are now in an economic crisis. The answer would differ depending on how one defines “crisis.” If an economic crisis means the country is on the verge of bankruptcy as in the 1997 financial crisis, when we ran out of foreign reserves, then this is not one. Our international balance of payments is in the black and we have over $160 billion in foreign reserves. Exports are booming and consumer prices are stable. But if we are to see a sluggish economy with no signs of vigor or activity as a crisis, then we are definitely in a crisis right now.
The Korean economy has experienced three major crises since the 1960s. They were the two oil shocks in 1974 and 1980 and the financial crisis in 1997. The crises happened mostly because of problems in our international balance of payments and a shortage of foreign reserves that led to unstable prices and serious recessions. The crises came in different forms, and they came abruptly when various elements coalesced for the worse. The current state of our international balance of payments makes it highly unlikely that we would be rushed to the emergency room after a crash as we were in 1997. This could be grounds for optimism. But that does not mean we should sit back. Internal sicknesses that fester inside are more dangerous than external wounds. A sluggish economy could be the first stage of a very serious crisis. Heavy household debts make it difficult for consumer spending to increase, and investment has been at a standstill for years. Moreover, the number of jobs has dwindled and youth unemployment is at its worst ever. Above all, people have lost their will to work. We could be in for a long period of suffering.
Japan slopped through 10 years of recession not because of any external wounds but because of its internal sickness. Even while experiencing a long recession, Japan’s international balance of payments was in the black and its consumer prices were stable. Naturally, no one felt any sense of crisis. Japan at least had a high individual savings rate and a firm manufacturing industrial foundation to see it through the 10 years of recession. What do we have to support us? All we have are heavy household debts and a budget deficit. Most businesses, small and medium firms in particular, are in a weak position. The economy might look fine with the immediate boom in exports and the surplus in the balance of payments, but in reality it has been drained of all vigor. What we need to do right now is to build up our stamina.
Looking around, everyone seems to think that our economy is in good shape. There is no room for a sense of crisis to settle in. Government policies put more emphasis on pursuing social equity than on economic recovery. The pragmatic turn that the government started to show earlier this year was gone after the legislative elections in April.
The focus of the reforms that the government is pursuing is not on building up our present strength but in breaking down past security. There are many policies that might be helpful for social equity in the long term but are burdensome to the economy now. It would be wonderful if we could pursue a more balanced development among the different regions of the country. It would be wonderful if we acquired the ability to autonomously defend our country. It would be wonderful if we could transfer the capital city. But it would also be costly.
The crisis in 1997 came because we were so intent on long-term goals that we forgot to cope with immediate issues. We were procrastinating even until October. We told ourselves that we would be all right because our economic foundation was firm. In all fairness, even the economists at the International Monetary Fund thought so too. When the bill on financial reforms was blown to pieces, and further domestic efforts to salvage the situation were thought insufficient, foreign investors rushed out of the country with their money in November like a flooded river after a dam collapses. This ultimately led us to the verge of national bankruptcy.
Thinking back, one cannot help wondering at the absurdity of it all. At the beginning of that year, there had been a string of large bankruptcies that started with the Hanbo Steel affair. Labor strikes and demonstrations were going on day in and day out and everything was in chaos. National leadership was lost and the political community aggravated the tension rather than trying to mediate a solution. Officials claimed that they were doing their best, but failed to show any practical determination or a comprehensive strategy to cope with the situation.
We are again visited by external disturbances such as high oil price and the “China shock.” Has anything changed since 1997? Everyone is talking but no one is showing any change in their thoughts or actions. Nor has the government’s leadership and attitude improved. Are we perhaps continuing to make the same mistakes because we refuse to see the warning signs?

* The writer is the vice chairman of Samsung Economic Research Institute. Translation by the JoongAng Daily staff.

by Choi Woo-suk
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