[OUTLOOK]What’s going on here?Korea’s interest rate cut has come under heavy censure from foreign media. World-renowned newspapers such as the Financial Times have criticized the rate cut in unison. They commented that the Korean central bank had compromised its credibility by changing its policy direction and that Korea was going against the flow of global trends by itself. They even made sarcastic comment that Korea’s monetary authorities have added a shock to the country, following the “political shock” of its president.
The Korean government doesn’t give a hoot about Korean media’s criticism. But it would be nice if it at least paid attention to the foreign media that have a strong influence on international society. The foreign media criticism was not limited only to the issue of the interest rate cuts. It sounded like an accumulated expression of a loss of confidence in the economic policies of the Roh Moo-hyun administration. A deep skepticism can be felt here. “O, Korean economy, where are you going?” Even Korean economic news journalists can’t understand what is going on with the Korean government’s economic policies. How far more confused would foreign journalists be?
Why is this government so peculiarly confusing? Economic policies are prone to change to adjust to the shifting environment. It is a matter of informed decision and no one can say for sure what is wrong or what is right. Yet, how could it happen that the criticism against Roh administration policies had risen so high as to reach the point of being ridiculed by foreign media?
The biggest reason for this distrust is that the Roh administration has already implemented too many inconsistent policies. The “New Deal” policy that it recently announced could be said to be the ultimate symbol of the policy chaos of the government. Starting with its name “the Korean New Deal” to the official announcement process, everything about this policy was absurd.
First of all, it alarmed many people. Everyone had gotten the impression that the official position of the government was that the economy was going just fine despite what the rest of the world thought.
All of a sudden, the government announces that it will use a megaton-sized reflationary policy of 10 trillion won ($9 billion). No wonder people were taken aback. The government’s only given reason was that a reflationary policy should be a concentrated, single, large-scale effort rather than a trickle of small measures like those used in Japan during its long recession.
That explanation fails to answer the crucial question, “Why?” There is no explanation why the government decided overnight to change its view of the economy. We don’t even know if it really has changed its view or not. During his visit to Los Angeles last week, President Roh remarked that the economic crisis pertained only to big firms and that Korea was continuing to enjoy prosperity. So what is this reflationary policy for?
This is getting confusing. Even at this point, I have no idea what President Roh’s real view of the economy is. If one follows the deputy prime minister of finance and economy, Lee Hun-jai, the economy is fine one day and then terrible the next. There is also no telling how much influence Lee Joung-woo, the director general for policy planning of the Blue House and supposed economic mastermind of this administration, has on policies. These days, there is also a new element to consider.
Prime Minister Lee Hai-chan has been voicing other views than those of the president. And even the governor of the central bank, who should be the last bulwark of financial policies, is making things confusing. The decision making process of the recent interest rate cut was ridiculous enough to be derided by the foreign media. It may be the job of bureaucrats to change their words, but the governor of the central bank should have been genuine in his apologies and explanations. By trying to evade the questions, he ended up causing more embarrassment for himself.
I, too, believe that reflationary policies are called for. Our unemployment situation is severe. But the government shouldn’t confuse the people with this ridiculous “New Deal” policy and ineffective interest rate cuts. If the government wants reflationary policies, the first thing it should do is withdraw restrictiive measures on the economy. It should re-examine its reform measures from the economy’s perspective and overhaul its real estate policies. Freezing transactions to nip speculation was only a temporary measure to begin with. The government should lower not only the registration and acquisition taxes but transfer taxes as well.
The budget should also be loosened if necessary. But this should be done in order, after policies that will encourage investment in the private sector. The government shouldn’t evade taking necessary policies fearing controversy over favoritism, instead of starting grand public projects by using pension funds.
* The writer is the chief economic correspondent of the JoongAng Ilbo.
by Lee Chang-kyu