Don’t panicThis is a crisis. The U.S. Dow Jones industrial average broke 10,000 and both the won to the dollar exchange rate and Kospi index are hovering at the 1,300 mark. No place is safe anymore.
There are few reasons to believe that Korea’s economy is not in good shape. The economy has much foreign debt for its scale. Korea has the biggest current account deficit in Asia. On top of this, knock-in knock-out products have caused huge losses, requiring hundreds of millions of dollars to be made up for. Foreign investors continue to sell off stocks because of concerns over foreign exchange losses. There is nothing we can do but cling to our own foreign reserves and wait for the chaos to subside.
However, we are not going to sink without a trace. Our economy is not so weak that it will be swept away in the storms blowing in from abroad. Dollar doldrums are a universal problem right now, and Korea is not the only nation perspiring. This country has still has the sixth-largest foreign reserves in the world and our companies and banks are healthy by international standards.
The market’s response so far has not been reasonable, making it essential that the government and the currency authorities soothe investors’ nerves. We need pragmatic measures that will infuse the market with hope and we need a summit meeting among Korea, China and Japan, proposed by the Blue House. But there is little chance of such a meeting and neither Japan nor China has a dollar surplus. We should remember that Washington has long expressed wariness about an economic block comprising Korea, China and Japan.
The Ministry of Strategy and Finance gathered the presidents of domestic banks and pushed them to do better. But first the ministry should have talked with overseas financial companies, a strategy that the financial supervisory authorities and state-owned banks should work on , now if need be. Then, we can prevent the Seoul branches of overseas financial companies from taking back as many loans in dollars as possible.
We won’t be able to avoid pain for quite a long period. We have to be well-prepared to overcome the crisis. If the international community requires joint measures, we have to cooperate fully. If the crisis hitting the global economy prolongs, we can’t be sure about our future. But it is very unlikely that Korea will collapse before other countries. Households, companies and the government must put the situation in perspective and should not overreact at all costs.