[NETIZENS’ VOICE]Prevent the return of the 1997 crisisAccording to the economic historian Charles P. Kindleberger, a financial crisis cycle lasts 10 years. If this theory is correct, Korea, which had a financial crisis in 1997, will likely have another in 2007. I believe this prediction will become reality.
The Korean won is rapidly strengthening against the dollar. The financial crisis in 1997 occurred after the value of the Korean won rose greatly. However, back then, the price of crude oil was much lower than today and was much more stable. We can say that in 1997, there was one less dangerous factor.
In 1997, the Korean government asserted that our economy was on a firm foundation. Even now, the government says the economy is recovering. But Korea’s international competitiveness ranking, announced recently by the International Institute for Management Development in Switzerland, slipped nine places, compared to last year. What is more shocking is that China is 19 places ahead of us.
At least in 1997, there was no threat of being upstaged by China.
The way to overcome difficulties from the soaring price of oil and the rising value of the Korean won is to absorb the escalating costs they cause through technology innovation. Unfortunately, for the past several years, Koreans have made poor progress. Korean currency accounts have maintained a surplus until now in order to stimulate domestic spending. Active domestic spending would have also boosted investment, creating more jobs and stimulating technology innovation.
Unfortunately, the Roh Moo-hyun administration did not choose this path. The Roh administration let these tasks pile up unattended and put all its effort in solving social and economic “polarization.” The problem is, this administration has not been able to achieve anything except dividing the people into two. One problem with this approach was the assumption that stabilizing real estate prices would solve polarization. Another problem is that, based on this conclusion, the government suppressed many economic activities in the real estate sector, resulting in poor domestic consumption and an increase in the number of unemployed.
Raising interest rates would have been a more effective way to prevent real estate prices from soaring. But strangely ― from the Kim Dae-jung administration to the current government ― the government has done its utmost to avoid raising interest rates. Had the government raised the interest rate, real estate prices would have gone up less and at a time like now, when the value of the Korea won is rising greatly, the government could lower the interest rate to give companies room to breathe.
Investment is an economic activity greatly influenced by subjective factors, such as the social climate. With this in view, we can see many factors that have had a bad effect on investment sentiment, such as a jaebol chairman being indicted and aggressive demonstrations in Pyeongtaek. What makes the atmosphere seem gloomier is the policy of the current government’s foreign diplomacy. The president and the unification minister frequently make remarks defending North Korea, losing trust of the international world. The more South Korean political leaders express views sounding more like North Koreans, the more we will be isolated internationally and the mood to invest in Korea will worsen. Considering the economic situation inside and outside Korea and the direction of the Roh administration’s foreign policy, a crisis is likely to come again by 2007. To prevent this crisis, we need, as soon as possible, to boldly change the conditions where things are going wrong.
by Kim Han-eung