[EDITORIALS]A dubious economic diagnosisThe government has presented an economic operation and investment plan that sets a goal of 5 percent growth for next year. Key to the plan is the early execution of fiscal projects and, in the second half of the year, the inducement of pension funds and private sector capital to invest in various public projects.
Having decided that even 4 percent growth will be hard to achieve next year if the current slowdown persists, the government is determined to revive the economy by mobilizing resources from finance and the private sector. In this same vein, President Roh Moo-hyun pledged to put all his energy next year into solving economic problems.
It is fortunate that the government has put the focus of next year’s plan for economic operations on promoting recovery.
Looking at the details of the plan, however, we still feel that the government’s recognition of the economic reality, and its measures to deal with it, are not sufficient.
First of all, the plan’s diagnosis of why the economy has fallen into stagnation is unclear. Sluggish domestic consumption is said to be the root cause. But that is not stagnation’s cause, it is one of its results. If we identify the reason for low investment and consumption, we will get a proper prescription. The wrong diagnosis will result in a prescription that doesn’t help.
If sluggish investment and consumption in the private sector are indeed the cause of economic stagnation, then the order of the day will be finding a way to revive it. According to the plan, however, the government is going to try to boost consumption directly, because it is showing no signs of revival. The plan to induce capital from the private sector to invest in social overhead capital and welfare facilities is no different from government investment. It is certainly not voluntary investment on the part of citizens.
We think the main reason for sluggish consumption is the uncertainty that economic players feel. Confusion in government policy has amplified their anxiety.
While pledging to save the economy, the government has imposed regulations on business. While declaring that the plummeting construction market is a problem, it has regulated real estate transactions.
If such contradictions are resolved, the uncertainties affecting the economy will be considerably reduced.