[Outlook]Emergency measures neededIn 1998, shortly after the foreign exchange crisis, the economy was a disaster and the entire country was on the verge of bankruptcy. In one day, more than 100 companies went under, and in a span of a few months, the number of unemployed soared from 500,000 to 1.2 million. Each new quarter brought new rumors of a looming, greater crisis, enraging and frustrating the public. Few were confident that we could overcome. It seemed like our dreams of becoming an advanced industrial country were shattered.
In 2009, 11 years later, another economic tsunami is coming at us with great speed and ferocity. As exports, consumption and investments have sunk, minus growth was recorded in the fourth quarter of last year. It was the lowest since the first quarter in 1998, when we saw minus 7.8 percent growth. If the situation persists, more companies will go bankrupt, household finances will turn ugly, and many more people will lose their jobs.
The vice chairman of one conglomerate said it feels like we are wandering in a dark tunnel, and that it will continue to be like that throughout this year. He also said that the BASF, a world-class chemical manufacturer, expected the current strife to go on for at least three years, and was looking into shutting down some of its facilities.
By any standard, the current situation is even worse than the foreign exchange crisis. Therefore, broader and bolder special measures are needed in order to restore the domestic economy.
It seems, however, that the government isn’t working hard enough to examine the measures used in the foreign exchange crisis in order to find the ones that we should use again. It seems that the government is failing to learn lessons for which we have paid a high price.
During the foreign exchange crisis, all possible measures were mobilized in order to restore the economy. But now, the government is consistently presenting its economic policies belatedly and is saying it is responding in a pre-emptive manner.
Look at the housing market, for example. According to that sector, 250,000 new apartments haven’t been sold yet and the market is on the brink of dying.
A series of measures have been presented to solve the liquidity crisis for builders, but nothing has been done to boost sales. Many issues stem from the fact that the former Roh Moo-hyun administration released 13 rounds of regulations, rules even the Organization of Economic Cooperation and Development said were too harsh.
Shin Hoon, the chairman of the Korean Housing Association and Kumho Asia Group vice chairman in charge of construction, says that the housing market is sagging due to frequent regulations and the financial crisis.
The housing sector asked the government numerous times to help it get back on track as the former administration did during the foreign exchange crisis. A key request is to drop a transfer tax for five years when a person buys a new apartment smaller than 83 square meters and sells it later.
Another main request is a temporary easing of the requirements for exemption from the transfer tax when a family owns only a single house. Under the current law, a person or family must own their house for more than three years in order to be free of the tax. The housing sector wants that to be lowered to one year.
It is also requesting the lift of the ban on selling apartments before a certain amount of time has passed after the purchase, and regulations on initial sales prices of apartments. It asked the government to lower an acquisition tax on purchases of new apartments of between 60 and 85 square meters. The market also wants the government to provide loans to those who earn the right to buy new apartments by installment and to increase credit guarantees for builders.
But the government is hesitating, seemingly too wary of public sentiment. The administration has revised the composite real estate tax and come under criticism for only catering to the rich.
Therefore, it thinks that if it lowers other taxes, opposition parties and civic organizations will strongly resist. However, the government must do what it has to do, even if that means being criticized.
There is no reason to hesitate, as many builders will likely go bankrupt if nothing is done. If the side effects look too drastic, the measures can be implemented temporarily. The government must remember that the housing industry is deeply intertwined with other industries and creates many jobs.
The former Kim Dae-jung administration’s measures to support small and medium companies should be carried out again. That government sponsored the Korea Credit Guarantee Fund and the Kibo Technology Fund when smaller firms faced a capital crunch. It also issued guarantees for financial matters related to such companies’ imports and exports. The financial sector participated in the move, although only because it was pushed to do so by the government.
Two months later, the government allowed companies to pay out 50 trillion won ($35.5 billion) in corporate bonds that would mature in February or March of 1998. It also postponed an over six-month extension of the repayment deadline for 25 trillion won in loans taken out by such companies in order to sustain their businesses.
When foreign companies issued import credit memorandums to Korean companies that imported raw materials from them, the Korea Credit Guarantee Fund guaranteed the Korean companies’ payments. As a result, the number of companies that went under decreased substantially and the economy rapidly re-established its security.
Emergency contingency plans, including those mentioned above, must be drawn up swiftly in order to rekindle the dying economy.
*The writer is a business news editor of the JoongAng Ilbo.
by Park Eui-joon