Resilience to external risksDark clouds loom over the global economy, according to Minister of Strategy and Finance Yoon Jeung-hyun, who warned government officials to gear up for a tumultuous storm with limited policy options.
The external economic environment is that perilous. International grain prices are on an upward spiral and oil prices are reaching crisis levels.
An export-driven economy such as Korea’s, which depends entirely on imported oil to run its industrial base and has a food self-sufficiency rate at just 27 percent, is vulnerable.
Housewives and drivers are dumbfounded by skyrocketing consumer and gasoline prices. Yet the government has little ammunition to fight the external cost-triggered inflation.
Still, the government cannot avoid criticism for its slow response - despite the ominous signs that a storm was brewing. The shock and damage would have been less if the government had prepared better.
The spike in prices has long been forecasted. The Organization for Economic Cooperation and Development and the Food and Agricultural Organization of the United Nations warned in June last year that countries with low self-sufficiency ratios could face a food crisis.
The International Monetary Fund also earlier in the year predicted a sharp surge in commodity prices.
Many had warned of inflationary risks when prices hovered above the potential economic growth rate, but the government still sat on its hands.
Instead, the government shrugged off the warnings, repeating its confidence of attaining targets of 5 percent growth and inflation under 3 percent. Overconfidence lead to ineptitude.
But it is no time for a blame game. As the finance minister pointed out, we are left with few policy options.
The best the government can do for now is to flexibly employ whatever financial and monetary ammunition it has.
It must first of all give up the vain ambition of attaining both growth and inflation targets. The government must also hold tight and steer the ship in the direction that the wind and new risks take us.
In the long run, it must actively shape the economy to be more resilient to external risks from a surge in grain, commodity and oil import prices.
It is time the economy outgrow external shocks.