Proper perceptionThe authorities in charge of economic policy seem too obsessed with the growth rate target of 6 percent. On Tuesday, an emergency meeting on macroeconomic policy at the Blue House did not express worries over the rise of the Korean exchange rate. It simply said that the rise of the exchange rate is too steep. This shows the economic team’s perception that a rise of the exchange rate will help exports and thus increase the growth rate. The economic leaders seem to prioritize growth, or exports, even if that would slightly dent stability in the economy, which means commodity prices. They have this reasoning probably because they think if the government fails to keep its pledge to achieve a 6 percent growth rate, the government will bear the political burden.
The problem is that this intent by the authorities disturbs the market. Currency speculators see through the cards that the government is holding. Since the new administration took office, speculators confidently bet on the rise of the exchange rate, resulting in a bizarre phenomenon in which only the won is weakening against the U.S. dollar while the U.S. dollar is being depreciated around the globe. The economic climate outside Korea is too hostile for the Korean government to undertake a new experiment. The U.S. housing market deteriorates, the U.S. financial crisis deepens and international raw material prices skyrocket. If the exchange rate goes up, exports will increase. But that will bring on side effects, such as dull investment and sluggish domestic demand. A growth-oriented policy might make people believe that commodity prices will remain high or increase, and in such cases the prices are highly likely to surge in reality.
The authorities must change their perception. It will be nothing but a cheap joke if they regulate commodity prices, such as those of instant noodles, while they set growth as a main goal for essential items for the economy, such as the exchange rate or the key interest rate. The growth rate target is merely a desired goal. Between growth and stabilization, stabilization must now be prioritized. If the administration truly cares about people’s livelihoods, stabilizing commodity prices will help them more than achieving a growth target using arbitrary measures. No other countries are as obsessed with a growth target like Korea. Considering the global climate or potential side effects, to try to achieve a certain economic growth rate is foolish gambling. It won’t be late to start the growth engine after the insecurity in the global economy dissipates.