No time for complacencyThe currency swap arrangement between the U.S. Federal Reserve Board and the Bank of Korea is well timed. The deal, providing access to U.S. dollars for up to $30 billion in exchange for won, had an immediate impact on the markets. The exchange rate fell and stock prices soared. Worries over Korea’s foreign exchange reserves seemed to have dissipated for now and the fundamentals of Korea’s economy were shown to be strong. The nightmare of national bankruptcy and a foreign exchange crisis have rapidly diminished. We applaud the BOK and the Ministry of Strategy and Finance for successfully negotiating the deal.
The United States didn’t turn away from its ally when it was in trouble. Through the currency swap contract, the true meaning of the Korea?U.S. alliance was once again underscored. However, we shouldn’t lower our guard just yet. We are still walking on thin ice and we don’t know when and where unexpected factors will pop up. The government should keep up the momentum and work to expand the limitation of a currency swap with China. The plan to raise a joint fund in the Asian region must be carried out as drawn under the Chiang Mai Initiative. For the past month, we have witnessed how vulnerable Korea’s economy is to external shocks. Korea’s economy is more dependent on exports than on domestic consumption, so it must prepare appropriate safety measures.
As the risks from outside decrease, our priorities must change accordingly. From now on, it is more important to manage stability in the domestic markets. As the exchange rate and prices of raw materials in international markets fall, there is room to lower interest rates. There is no need now to use taxpayers’ money to pay back foreign debt, so there is more room for financial investment. We believe this extra capacity should be used to protect people on low incomes and small- and mid-scale companies. Food from China has grown more expensive and interest rates on household loans are too high for many to cope with. This winter will be harsh, especially for the less privileged members of society.
We should not forget the importance of retreating in an organized manner. If we feel too relieved that the worst has been avoided and if we don’t do our best to improve our economy, a crisis might recur. If bubbles exist in the real estate market, they should be deflated gradually. We should discourage banks from excessive borrowing and mindless lending, chronic problems that have endangered our economy.