Results before eagerness
The Korean economy is showing worrisome signs. Finance Minister Choi Kyung-hwan is overeager and pledged to do whatever he could to revive the economy, even if that meant charting a new path. He has been in office for two months, pouring out one part of his stimulus plan after another. Yet the economy remains stubbornly weak.
Initial expectations are starting to sour. The most recent industrial data for August shows the economy is slowing despite twin fiscal and monetary stimulus plans. As it turns out, manufacturing fell 0.6 percent over July, the first decline in three months. Mining and industrial production contracted 3.8 percent - the biggest fall since the 10.5 percent dip triggered by the Wall Street financial meltdown in December 2008.
Capital investment has plunged by 10.6 percent - the most since a 16.1 percent fall in January 2003. There was just one positive piece of data - retail sales increased by 2.7 percent. But the overall depression of industrial activity raises concerns about the economic outlook.
The government has been blaming sluggish demand on the Sewol sinking in April and on the deadlock in the National Assembly, which has wasted the past six months wrangling over a single special law to investigate the Sewol crisis for the delayed recovery.
But signs of improvement in consumer sales suggest the country has finally shaken off the Sewol shock. The government can no longer blame the legislature when it returns to normal business after a breakthrough in the Sewol law. It doesn’t have an excuse if the economy fails to pick up. The entire onus is on the government and the economic team led by Choi.
Time is running out. External conditions are worsening. If the all-out fiscal and monetary actions do not work their magic by early next year, the impetus to accelerate the recovery could be lost. Disappointment could dampen business confidence, casting a lengthy pall over the entire economy.
The sudden weakening of the yen and declining exports to China are darkening prospects internationally.
If exports that have entirely supported the economy in the prolonged slump in domestic demand lose ground, there may be no hope for the economy. The government and industry must work fast to come up with measures to combat the weak yen and tap new markets that could compensate for the reduced demand from China.
The Korean economy is faced with a double whammy. Little sign of recovery is the biggest danger. Choi and his economic team are responsible for tending to the economy immediately and they must apply structural reforms that will have lasting effects. Eagerness is not enough. We need to see results.
JoongAng Ilbo, Oct. 2. Page 38