No more straight words, pleaseWhenever a new administration comes in, it takes a traditional approach to pursue aggressive growth-oriented policies for the economy. At the beginning, past administrations were similarly full of hope for reform and renovations. But the Park Geun-hye administration was different. It did start the engine, but it didn’t heat up, and people grew concerned that it was already broken.
That’s why expectations for the deputy prime minister for the economy are so high. The market wants to feel the authority of a straightforward leader from Choi Kyung-hwan, the deputy prime minister nominee.
Fortunately, he is eager to display that leadership. However, excessive confidence can and will lead to errors. Market watchers are already scrutinizing the words that come out of his mouth. And if he is formally confirmed in the appointment hearing, the market will be watching and scrutinizing his words even more closely.
Choi is already sending clear signs. His speech is reckless. However, his confidence to show his cards too soon could be foolish. When he was nominated last month, he said, “The currency policy of the past is quite far from citizens’ happiness today. The high exchange rate is not very effective, as overseas outsourcing is increasing. When the value of the Korean won goes up, purchasing power improves and income is increased in effect.”
He revealed his intention to tolerate the rising value of the Korean won. It can turn Korea into prey for speculative investors. Coincidentally, the price of the Korean won continues to rise. Of course, the trend is inevitable due to the consistent trade surplus. But if authorities show a certain inclination, the risk of speculative investment always exists.
The economic strength of the United Kingdom was nearly exhausted in the early 1990s, and the value of the British pound was falling. But the authorities were determined to actively defend the value in order to enhance the competitiveness of its financial industry and revealed a strategy to use its foreign currency reserve to buy British pounds from the market.
Hedge fund tycoon George Soros wouldn’t miss the chance. He sold the British currency that he purchased at once. In the end, the United Kingdom ended up using its foreign currency reserves but failed to defend the crash. Soros disturbed the British currency market and left with enormous gain. This is the story of “fleecing the flock” that Great Britain remembers as a disgrace.
Choi’s message to the market should be “vague.” He has shown a strong desire to ease regulations on the debt-to-income ratio (DTI) and the loan-to-value ratio (LTV), but while the needs are clear, sudden change is not desirable. If he continues to use straight words, no one can guarantee that the market will not tilt to one side and as a result, suffer adverse side effects. Now, and in the future, he needs to be more ambiguous.
JoongAng Ilbo, July 7, Page 34
*The author is a business and industry news editor of the JoongAng Sunday.
BY KIM JONG-YOON