Should we envy Abenomics?A presidential spokesman’s sexual misconduct in Washington cast a pall on President Park Geun-hye’s first state visit to the United States last week. The visit helped to improve her approval rating to nearly 60 percent thanks to her competence in front of the U.S. leaders. The presidential office and government that planned to aggressively pursue policies emboldened by the president’s feat are now busy cleaning up the mess the ex-presidential spokesman left. President Park humbly had to bow her head instead of beaming with pride as soon as she returned from Washington.
On the foreign front, the government is waging a losing battle against a cheap yen policy from Japan to protect panicky local exporting troops. The yen broke through the resistance level of 100 for the first time in more than four years, giving symbolic victory to Japanese Prime Minister Shinzo Abe’s ultra loose monetary policy to inflate the economy and bolster Japanese-made industrial products. Korean exporters who must compete with Japanese companies in most mainstream industrial areas are shrieking in panic. Local share prices plunged, and expectations of an economic pickup - thanks to real estate stimuli and supplementary budgeting - have suddenly been dashed.
Abe is unpopular in Korea and other parts of Asia due to an unapologetic and far-right attitude toward Japans’s wartime past, but enjoys an unprecedentedly high approval rating of 72 percent. His nationalistic drive and vociferous campaign to revive the economy and restore the reputation of Japan Inc. have drawn wide support from the Japanese populace and businesses. Companies have regained vitality, and equity and housing prices are shooting up. A sense of optimism is permeating the air in Japan with hopes that the country may finally pull out of its moribund state. The government and politicians for now cannot care less how neighboring and trade partner countries suffer from a protective currency policy if they can restore the local economy and confidence in their people.
A recent Group of Seven meeting of finance ministers and central banks indicated tolerance to Japan’s currency policy as part of eager measures to revive the economy. A revived Japanese economy could be good for the global economy while other advanced economies are faring so poorly. Our argument that Japan’s ultra-easing monetary policy is no more than beggar-thy-neighbor that takes a toll on the trade of other countries falls on deaf ears. Other countries are less affected because they do not compete as heavily with Japanese companies as Korean exporters do. It would be hard for us to find allies to fight Japan’s devaluation policy on a global stage.
So-called Abenomics is a mix of bold fiscal and monetary policies to weaken the currency, boost exports and increase demand to fix the decades-long deflationary malaise once and for all. The central bank vowed to achieve an inflation target of 2 percent through unlimited quantitative easing while the government carries out hefty fiscal spending with a focus on infrastructure to increase jobs in hopes of ending the recession and boosting annual growth to as much as 2 percent. The policy is a mixture of the strongest remedies possible to kick-start the economy.
Abe replaced an uncooperative central bank governor to pursue his policy and succeeded in bringing down the value of the yen by 30 percent through an aggressive bond purchase program. Stocks are at multi-year highs. It is no wonder that the Japanese are happy with Abe’s prescription. Investors are equally satisfied with the activity in Asia’s third-largest economy. Investment banks all raised their economic outlook on Japan. Korea Inc., suffering a double whammy of sluggish overseas demand and the cheaper yen, may be eyeing its Japanese competitors with envy.
But it is too early to proclaim success in Abenomics. It could be more damaging in the longer run. The devaluation is a boon to exporters, but hardly helps to boost local demand. Even as the central bank prints out money endlessly and fuels banks to lend at a virtually zero interest rate, there are not enough people who are borrowing and spending.
The hefty public spending and budgetary increase could also end up worsening the government debt, which is already the world’s highest - instead of spurring inflation. Japan’s credit ratings could suffer due to an increased debt ratio, fanning borrowing rates to soar. Structural reforms to boost corporate investment and competitiveness are also rhetorical and a recycling of old policies. In fact, there’s little to learn and borrow from the Abenomics prescription. We should instead be prepared against negative repercussions from the failure and side effects from the policy mix.
What we are envious of is not the policy itself, but the will and drive of the Japanese leadership. The Abe government has set a specific target to expunge the deflationary slump and a means to attain the goal. Our government has many things on its agenda, but not one specific and clear-cut goal on the economy. Increasing jobs, welfare infrastructure, economic justice and corporate investment, deregulation and fair competition are conflicting policies. Without a clear direction, the policies cannot work. Moreover, consumers and businesses are confused and unmotivated. Without will and confidence, the economy won’t pick up.
*The author is an editorial writer of the JoongAng Ilbo.
by Kim Jong-soo