[Viewpoint] Keep our economic guard upA macro policy - a fiscal one to be precise - is nowhere in sight. A macro policy is a textbook theory for the government to expand spending if the economy turns bad. It is a kind of preemptive move to offset further damage or a prolonged slowdown. An aggressive fiscal policy is commonly applied if the economic outlook darkens.
The government has the duty and power to stabilize the economy through fiscal and monetary tools. But we see none of these interventions from the government even as the economy turns from bad to worse amid foggy prospects. The only economic actions we have seen so far are measures to boost investment and revive the real estate market.
But the poor details can hardly earn the title as stimulus and stabilization measures. The government itself admitted they were flimsy. What is wrong?
Few disagree that the economy is not so good. The Bank of Korea downgraded this year’s growth estimate to 3.5 percent from 3.7 percent. Under the forecast, the economy will be performing below the growth potential rate for the second consecutive year, which is not common here.
The central bank turned even more pessimistic by cutting the outlook number, which is a sharp slowdown from 4.6 percent growth estimated in July last year.
The market economy is flagging as well. First-quarter corporate earnings were disappointing. Except for Samsung Electronics, operating profits of listed companies plunged 11 percent. Samsung Electronics and Hyundai Motor are among a handful of large profit-making companies.
Exports fell in March and April. Shipments to the country’s largest export market, China, which expanded in double digits over recent years, gained a mere 0.7 percent on-year in the first quarter. Private consumption rose 1 percent on-year in the first three months.
Consumer spending has been chronically depressed. But it is further weighed down by household debt that nears 1,000 trillion won ($871 billion). Without shaking off some of the debt load, consumption likely won’t pick up.
Land mines are everywhere. The European credit crisis is expected to drag on for at least five years. Fiscal consolidation in the euro zone could be a fundamental solution, but that, however, is a distant reality. The leftists’ victory in France makes the equation more difficult.
The U.S. economy is also unpromising. Concerns for a prolonged slowdown or double dip still linger, and a pickup likely won’t begin before 2015. We cannot expect a turnaround in a local economy dependent on the global one any time soon.
In the past, the government would have stepped in with active supply-side initiatives. It could have at least stirred up a debate on the economy.
But now, the government is strangely silent and inactive. Is it content that the economy is at least moving, even at a snail’s pace, or rather, does it choose a state of helplessness against the global plight? I would rather blame an absence of policy actions on the government’s obsession with balanced finance.
In a recent dinner at the presidential office last month, economic policy makers at the meeting were in one voice emphasizing fiscal integrity. The government is intent on leaving state coffers ample for the incoming administration. No one dares suggest increased spending to give the economy a push or resilience to any other unexpected dangers.
They are following orders from the boss, President Lee Myung-bak, who has been unequivocal in keeping fiscal numbers in positive territory. From the evident lessons from countries stricken with fiscal debt, the government is right to pursue a fiscal balance and keep welfare populism at bay.
But a balanced budget should not be a dogmatic guideline. Finance Minister Bahk Jae-wan calls himself a guard of state coffers and is proud of the country’s budget prudence. There is no room for discussion.
When needed, deficit budgeting could be helpful. The problem is not the government’s spending, but spending poorly. Expenditures to boost productivity could serve the economy positively. People can differ in economic forecasts. The government may prove to be correct in predicting that the economy has hit the bottom and is headed south from the second half. But the government must always maintain flexibility in policy making.
It won’t be of any help if authorities are too caught up in economic doctrine to have any maneuvering options left. Moreover, there are too many uncertainties on the horizon to let down our guard on the economic front.
*The author is an editorial writer of the JoongAng Ilbo.
By Kim Yeong-ook