[Viewpoint] An age of permemant economic crisisCorporate executive-turned-bureaucrat Lee Myung-bak became the president with promise to save the economy more than four years ago. But looking back on the trajectory, all he and his administration seemed to have done so far is maintain status quo.
Of course, he could argue he had not been lucky. In the first year of his term, the global economy was rattled by financial crisis sparked by Wall Street meltdown. The fledging recovery in the global economy was then hit by credit and liquidity crisis in Europe. The epicenter, Greece, is now on the brink of sovereign bankruptcy. The global economy devastated by one blow after another is headed for a double dip.
The local economy with high reliance on exports as growth engine has limits in its resilience to sustain in the face of external shocks. The government was too busy fighting off risks and corralling the economy from further damage, let alone stimulating and generating growth. For the five years, the government’s economic policies were entirely preoccupied with risk control management. It cannot be entirely culpable for the slow-moving economy. Some would even congratulate it for a job well done on preventing it from getting worse.
But economic crisis should no longer be a surprise. The Wall Street-sparked financial crisis erupted more than decade after the 1997 Asian currency crisis. But the European fiscal crisis ensued less than two years after. Some would say an extension of crisis period. The European fiscal debt crisis has been dragging, weighing over the global economy and threatening with a sovereign insolvency. Whether Greece goes bankrupt or not, the European continent won’t be out of danger for some time. The Greece crisis could spread to other weaker EU economies like Portugal, Spain, and Italy. The crisis is settling as a constant rather than variable threat and interruption to the global economy.
Except for the 1997 currency crisis, South Korea has so far stood well against outside risks and crisis. Foreign capital ebbed out of the local market every time the global financial market shook, wrecking havoc on the capital and currency bourse. The renewed Greece crisis also sent the local share prices tumbling down and making the biggest losses in Asia after Hong Kong due to exodus of foreign capital.
But authorities meanwhile have succeeded in staking up foreign exchange reserves of more than 300 billion U.S. dollars and struck currency swap agreements with Asian countries to stave off any liquidity dangers. The economy also gained confidence and resilience in battling external enemies.
More dangerous than persistent crisis is growth engine crippled and petering out by prolonged slump in global economy. The global economy which has endured unprecedented harsh slowdown after the 2008 financial meltdown barely recovered through concerted efforts by leading 20 economies before it stumbled upon mines on the EU front. South Korea’s economy which managed to pick up speed last year from a poor year in 2010 has slowed to a pace of 3 percent this year.
The fledgling recovery in the U.S. is hardly strong enough to compensate for depressed consumption in Europe. China which helped to absorb market losses in the U.S. and Europe can no longer sustain. China is showing signs of losing steam and soft-landing after decades of galloping pace. The woes of southern European economies have spread to the entire continent and have arrived on our shores.
State-run think tank Korea Development Institute cut this year’s growth estimate to 3.6 percent from initial 3.8 percent citing increased precariousness on the foreign front amid worsening fiscal woes in Europe. The country’s growth could slump below 3 percent if Greece declares bankruptcy and sends shockwaves to other neighboring economies and their financial sector. The economy could hit the brakes due to battered exports and dampened domestic consumption.
The economic structure that entirely relies on exports can no longer work in current paradigm with constant dangers. With growth at snail’s pace, all the rosy promises of increased welfare benefits and improvement in wealth equalities will become wishful thinking. What is urgent is to revamp the economic structure to minimize liquidity crisis and drive the economy on domestic consumption rather than insecure foreign demand.
The European crisis cannot be expected to be settled soon. Governments around the world should fix their fiscal problems and renew growth engine. They must initiate painful restructuring to revitalize their economies and their growth potential. The ultimate goal is to make the economy moving and running again. Restructuring should be the prerequisite and tightening the policy direction.
There is no time to lose debating whether expansionary or tightening is better cure. Governments must pose the question to the public and ask how much of tightening the people are willing to agree to. Domestic political circumstances would make the choice difficult. It is why we should be prepared to live with the danger for a long time.
*The author is an editorial writer of the JoongAng Ilbo.
By Kim Jong-soo