[Viewpoint]Let buyers bewareMarkets are by nature noisy. It is unnatural if one is quiet. The stock market, the heart of capitalism, is just as noisy as a clothing store holding a clearance sale in an alley. The salesman might entice patrons with lies and exaggerations, and it is the responsibility of the buyers to be prudent.
But the uproar in the financial market went a little too far over the last week. The market was so noisy it seemed as if the world would end before the Chuseok holiday. Rumors of impending economic disaster combined with traumatic memories of the financial crisis of the late ’90s and the Sept. 11 terror attacks in the United States.
The creators of the rumor cited a few market situations to make the scenario seem more plausible. First, they refer to the fact that 7.9 trillion won ($7.3 billion) worth of bonds will mature between Sept. 9 and Sept. 11. If foreign investors cash out their holdings of about $6.7 billion worth of bonds, take their profits and leave Korea, the value of the Korean won could crash and a financial crisis would begin, the rumor mongers said.
Although it is a relatively small amount compared to the foreign currency reserve of $243.2 billion as of the end of August, the crisis talk sounded convincing because the trade deficit has been growing over the last few months. When the plan to issue $1 billion worth of foreign exchange stabilization bonds successfully takes off on Sept. 11, the rumor will disappear.
Admittedly, the recent increase of short-term external debt is not good news, but most of the debt belongs to foreign banks or exporters such as shipbuilders and was acquired for the purpose of currency hedging. Therefore such liabilities will automatically be cleared as soon as the payment orders are received.
While we do need to keep track of the foreign exchange situation, the International Monetary Fund and rating agencies such as S&P, Moody’s and Fitch Ratings confirm that a shortage of foreign currency is not an urgent problem.
The rumor is made complete by reminding us of the 1997-98 financial crisis. However, unlike in the period of the late 1990s, Korean companies now have relatively healthier financial structures. Of course, the construction industry is facing a serious liquidity crunch due to a slump in the real estate market, and small and midsized businesses are struggling because of shrinking domestic demand. However, Korea is not the only country in distress. In fact, the entire world is experiencing similar pains. Fortunately, international oil prices have dropped, and Korea can catch a breath from improved international balance of payments.
This time, the crisis theory will be just that - a theory. However, a real crisis will come to us someday for sure. We can learn to prevent or minimize it if we properly interpret relevant scenarios as well as crises of the past and present. Since the financial crisis, Korea still falls behind in terms of labor flexibility, public corporation reform, crisis management systems, political innovation and public enlightenment. These weaknesses remain potential causes of crises.
We need to remove these volatile factors one by one. Instead of publishing a white paper on the causes of crises, we are accustomed to pointing fingers at certain managers and punishing them. The same practice is repeated on every major policy issue, and government officials are too busy covering their tracks to respond pre-emptively.
When something of importance happens, officials delay, cover up and obscure to protect themselves. Lately, giving immunity to police in the line of duty is a matter of great concern, but immunity should actually be given to economic policy and supervisory authorities. The purpose of the U.S. Federal Reserve is to supervise commercial banks. Fed chairman Ben Bernanke receives compliments for actions that would land him in jail if he were in Korea.
At a time of crisis, the discretion of authorities needs to be recognized. This issue is on a different level from corruption. The supervisory authorities need to set the rules of the game for market players, and the Board of Audit and Inspection and judicial authorities should set rules for government officials. The authorities are not responding pre-emptively, and government agencies seem to lack coordinated responses.
The government named foreign exchange dealers and equity analysts as the creators of the crisis scenario and warned them to keep strict control over themselves. However, punitive measures should remain minimal except in the case of those taking unlawful profits.
If we are to live in a market economy, rumors are something we must learn to live with. Although the authorities might consider them bad pranks, no one should be punished for playing a game that is accepted in the market, such as hedging or making short sales. The market is always full of rumors, and the authorities will fail if they fret over controlling them.
When there is a flood of information, authorities can easily make mistakes. Let’s get back to the basics and think. The government, especially one that is pursuing a spot in the international financial market, will make a fool of itself if it neglects or overreacts to rumors.
*The writer is a professor emeritus at Sogang University. Translation by the JoongAng Daily staff.
by Kim Byeong-ju