[FORUM]Misplaced economic priorities“Our economy is improving. Exports for the past three years have seen double-digit increases, with a trade surplus of $23.5 billion last year and $67.9 billion over the past three years. This trend will continue for a while.”
That was how President Roh Moo-hyun began his New Year’s address to the nation on Jan. 18. President Roh continued his speech by saying, “The good news is that domestic consumption is recovering.” He added, “If domestic spending recovers, the economy that you, the general public, feel will improve, too.”
The president said that although the economy as a whole was improving, a serious problem in Korean society, if examined closely, was polarization. He also pointed out that the essential issues of working people’s economic lives were those of real estate and private education costs.
The atmosphere of businesses, however, is different altogether. Successful large companies, including Samsung, LG and and the Hyundai-Kia group, suddenly declared that they would adopt “emergency management systems” due to the foreign exchange problem. The Korean won-U.S. dollar exchange rate, which was over 1,000 won at the end of last year, recently dropped to around 960 won. The won-yen exchange rate, which has greater impact on exports, fell to a larger degree. These companies are screaming that the “Maginot line of exports” will soon collapse. Small and medium-sized businesses do not even have the strength to scream. In addition, as the trend of rising oil prices is unlikely to stop, it is no overstatement to say that this year’s biggest economic concerns will be the foreign exchange rate and oil prices.
Businesses are worried that the government is not determined enough to prevent the exchange rate from dropping sharply. Despite the government’s strong denial, businesses have a good reason to complain, given the market situation. Although they cannot recklessly prevent a drop in the exchange rate, foreign exchange authorities should be able to show their determination to stabilize the exchange rate instead of letting it fluctuate wildly as it does these days. But outcries are heard here and there that the authorities have no intention or ability to do so. The situation must be quite serious, given that a high-ranking trade official at the Ministry of Commerce, Industry and Energy criticized the foreign exchange authorities, asking, “Why don’t they intervene in the foreign exchange market?”
From the position of the foreign exchange authorities, it could be burdensome to actively intervene in the market. They had a hard time of it in 2004 because they saw losses as a result of excessive intervention in the foreign exchange market to prevent the exchange rate from falling. At that time, an opposition lawmaker criticized the government’s intervention into the foreign exchange market, saying, “The government is only helping large companies’ exports with the people’s tax money.” This was a rare scene, in which the National Assembly publicly criticized the government’s intervention in the foreign exchange market, thereby narrowing the latitude of the foreign exchange authorities.
Instead of dealing with the problems of the exchange rate and oil prices, the government is moving quickly to deal with the issues of polarization and real estate, which the president proposed to tackle. Since the beginning of the year, the president has created a general commotion over the tax raise issue. A few days ago, he presided a meeting of the heads of the party, the government and the Blue House to discuss the problems of apartment reconstruction projects.
But the measures against polarization and apartment reconstruction problems that the government has prepared are merely a symptomatic treatment rather than structural approach. The government seems to take out this and that measure it has buried in the drawer to date. Its policy of scrapping tax benefits for singles and married couples without children in order to raise funds for projects to tackle the low birthrate and polarization produced another controversy over equity. Policies adopted from the viewpoint that owners of apartments that need razing and rebuilding should be cracked down on, as they are “speculators,” cannot help but distort the supply and demand of the real estate market in a few years.
The issues of polarization, real estate and private education fees are important tasks that must be solved at all costs. But what is no less important and urgent than those issues are the problems of the exchange rate and oil prices, which will immediately hold back the economy. We wonder how seriously the government thinks about the issues of the exchange rate and oil prices. We are concerned about whether the government will ruin the “improving” economy while being preoccupied with the problems of polarization and real estate. A drop in the exchange rate and an increase in oil prices can aggravate the polarization by doing more damage to small and medium-sized businesses.
* The writer is the business news editor of the JoongAng Ilbo.
by Lee Se-jung