[Viewpoint]Korea’s fate twinned to U.S.President Barack Obama had a rare opportunity to rescue the global economy. He could have been the white knight, saving the world with powerful economic stimulus measures and a bailout plan for the financial industry that could have provided the momentum for the global financial system to recover. That chance, however, has slipped away.
Of course, the crisis is too overwhelming for the United States to handle alone. However, if Obama could have resolved issues in the American economy, the uncertainties around the world would have been reduced.
The $789 billion U.S. economic stimulus and $2 trillion bailout plan, the second part of an earlier rescue package for the U.S. financial industry, were finalized last week, but they fail to clean up the mess at home. Because there is no assurance that the crisis has been cut off at its source, uncertainty grips the world.
The economic stimulus failed to win bipartisan support, so it lost power from the beginning. Furthermore, most of the stimulus measures will start to show results sometime after next year, so no immediate effects will be seen. Tax cuts are supposed to have an immediate effect on spurring consumption, but this will only be possible sometime after April. The measures Obama is taking are too little to resuscitate the dying economy.
In addition, the stimulus measures include “buy American” clauses to please Republicans, so the effects on the world economy will be compromised.
The bailout plan for the financial industry is even more disappointing. We have learned that the best resolution for a financial crisis is to revive insolvent financial institutions as quickly as possible. Sweden did exactly that when it successfully escaped its financial crisis. Korea also did so in the wake of the 1997 Asian financial crisis.
Whether the plan will create “bad banks” or nationalize insolvent banks, the most important task is complete liquidation of insolvent financial companies to return confidence to the market.
Of course, an enormous sum of state funds is required for an all-out clean-up measure, but we have already learned that to do so is far more effective and economical than injecting small sums of bailout money one after another.
The bailout plan proposed by Treasury Secretary Tim Geithner, however, is far too small to meet such expectations. He refused to adopt a bad bank system and to nationalize insolvent financial companies. Geithner proposed a public?private investment fund, but didn’t give specific action plans on how to clear up insolvent assets. Of course the market is disappointed. Stock markets have crashed and the foreign currency markets have fluctuated.
As the U.S. government was reluctant to act decisively, insolvent financial companies’ stock prices plummeted. Rumors persist that the Citibank, the largest U.S. bank, and AIG, the largest U.S. insurance company, will soon be nationalized.
The U.S. government should have been more decisive and determined to restructure the financial industry, but it has lost its focus and wasted time, amplifying the fears in the financial markets.
Whenever other countries face a financial crisis, the United States presses for merciless restructuring under the guidance of the International Monetary Fund. And yet, the United States has failed to follow its own prescription during a crisis of its own.
Of course, the financial crisis in the United States is different from that of other countries. The magnitude of the insolvency is far greater and the problem is extremely complicated. However, that does not mean that there is a different way out. Washington just fears the consequences, the political burdens and hardships it would put on society.
The serious problem is that there is no way out for the world economy when the United States is at a loss. Iceland has already gone bankrupt, and other Eastern European countries are also facing national bankruptcies. The seriousness of the U.S. crisis, however, is even more devastating.
Under such circumstances, small open economies such as Korea are suffering the most. If the United States had cleaned up the mess at home, Korea would not be suffering this pain right now.
But there is nothing we can do about the reality that the world economy and the Korean economy will get better only after the recovery of the U.S. economy.
Restructuring efforts and economic stimulus measures will soon take place in Korea, but there is no point unless the U.S. economy is revived. Maybe we need to pray for the United States to come to its senses and get a grip on reality.
*The writer is an editorial writer of the JoongAng Ilbo.
by Kim Jong-soo