Breathing space

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Breathing space

The global financial crisis shows signs of abating in response to the combined efforts of advanced countries working through possible solutions.

Of course, we’re not out of the woods yet.

The financial crisis is spilling into the real economy and affecting consumption, investment and real estate. If the rescue packages put forward are limited in some way, financial markets around the world could be sent reeling once again.

Even if we overcome this crisis, we will be faced with a painful period of restructuring.

As the economic bubbles burst one by one, we have to reduce credit and readjust liabilities. For a considerable period, we will have to reduce consumption and investment. Unemployment is certain to rise. Since Korea’s economy is heavily dependent on exports, we are likely to see a series of side effects, all of which will have to be overcome.

From now on, we have to find ways to reenergize our economy. We should strengthen the foreign exchange market, which has revealed its weaknesses, and build up the foreign currency reserve.

But we shouldn’t act quickly to alter interest rates just yet.

Bubbles in the real estate market and households’ loans worth more than 500 trillion won ($408 billion) are threatening to topple our economy. The era of low interest rates looks like it’s over.

So we have to abandon the notion that loans are also assets.

Under a reasonable interest rate policy, households’ heavy liabilities must be readjusted and commodity prices stabilized.

We should watch out to see if the government uses the financial crisis as a pretext for not carrying out reform. It is good that the Finance Services Commission has eased regulations that banned commercial companies from ownership of banks. But the government hesitates to ease regulations further.

We should try to remind ourselves that from a long-term perspective, a crisis can turn into an opportunity.

It is worth keeping tabs on Samsung and General Electric. Samsung ordered all its affiliates to consider mergers and acquisitions as a key management strategy for next year in order to dominate the market.

Meanwhile, GE raised $12 billion in capital last week. The stock price was seriously damaged but the management has its eyes firmly focused on future growth.

If we remain timid in the face of the crisis, we face a shabby future. It is time to overcome the economic crisis and prepare for the future step-by-step.

When we have the big picture, we can overcome the crisis more wisely.

The current economic crisis is a warning to the entire world to seek a new way for the future.
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