Bracing for economic chaos

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Bracing for economic chaos

Stock markets at home and abroad are wildly fluctuating. After U.S. Federal Reserve Chairman Ben Bernanke mentioned last week the possibility of downsizing its months-long quantitative easing within a few months, interest rates of U.S. Treasury bonds skyrocketed along with those of Japanese government bonds.

After that, jitters over the possibility that Abenomics - aimed at resuscitating Japan’s moribund economy through a vigorous mix of fiscal and monetary policies - may eventually backfire has led to a stunning stock market crash in Tokyo, not to mention an alarming fall in share prices on the Korea Stock Exchange. Even though a number of bourses overseas managed to restore stability, uneasiness over the uncertain prospects of the world economy doesn’t show any sign of amelioration.

Such uncertainties about the global economy not only protract its recovery but also plant a seed of new woe. Since the 2008 global financial crisis, many countries have sought economic recovery through quantitative easing largely based on printing more money. Yet that has bred new concerns about side effects even without bringing any indications of economic recovery. As the U.S. government has hinted at the possibility of retrieving the money, it has splashed cold water on the economies of Europe and Japan, which are still stuck in recession. The international financial market is also plodding through the thick fog of uncertainty since each country’s real economy and monetary policy are out of tune.

Under such circumstances, an economy like ours - which is open and comparatively small - is particularly vulnerable to shocks from the international financial market. Hyun Oh-seok, deputy prime minister for economy and finance minister, has expressed his agony in devising appropriate initiatives to cope with the challenge. “Too much influx of foreign capital into our bond market is a headache for us, just like a too-fast exit of the money is,” he said.

Despite the Park Geun-hye administration’s aggressive push for various programs aimed at putting the economy back on track, there have been no palpable signs of improvement. To make matters worse, if another financial shock hits the country soon, we can hardly expect it to rebound hopefully in the second half of the year.

The situation facing the Korean economy looks like the calm before the storm. Once it hits the country down the road, it could push our economy into the scourge of long-term recession instead of the hope of recovery. It’s time for the government to be thoroughly prepared for any potential chaos in our foreign exchange and capital markets - before it’s too late.
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