[EDITORIALS]Put plant investment firstThe main reason why Korea’s economy is slowing is that businesses are making few facilities investments. The domestic economy, which appeared to be emerging from its long recession early this year, is once again plummeting, battered by bad news from abroad, such as soaring crude oil prices and a weaker dollar. It is now clear that low investment in facilities is to blame for the faltering economy.
During an evaluation of the present state of the economy, the government itself cited weak facilities investments as the biggest obstacle to a recovery in the domestic economy.
Until the 1997-98 financial crisis, the increasing rate of investment in facilities had marked double-digit growth every year. But since 2001, the rate has been only 1.1 percent on average. It is only one-tenth that of the average annual rates from 1991 to 1996. Though private consumption is increasing, it will not last long if it is not bolstered by corporate investment.
Andy Xie, the chief economist at Morgan Stanley and a specialist on the Korean economy, said that to sustain the nation’s economic growth, wages would have to be raised to prop up consumer sentiment which must be preceded by an increase in facilities investments. This means that greater capital spending is the key to a recovery in the Korean economy.
Yet domestic facilities investments, which showed signs of recovery for a short period of time late last year, fell into negative growth in the first quarter of this year. If seasonally adjusted, such investment slipped 0.7 percent from the fourth quarter of last year.
Domestic companies are still hesitating to invest because many regulations are still on the book, and because wages and land prices are too high. In addition, the rising price of oil and the appreciation of the won against the dollar are obstructing economic growth.
The government modestly described this situation as a “lack of economic and social circumstances that would ease companies’ risks in new investments.” In other words, the government is acknowledging that it is difficult for the companies to revive investment in such conditions.
The government had said it was doing its best to make a “good environment for doing business,” but recently said “investment has not been recovered due to the lack of related circumstances.” How does the government expect the economy to revive without plans to promote investment and without the will to do so?
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