A turning point
The year is coming to a close and yet there is little hope that the economy will get any better in 2015. Deputy Prime Minister and Finance Minister Choi Kyung-hwan, who solemnly promised a new path for the economy, has accomplished little. Most likely, the government has missed its growth target for the year and may have to cut estimates for next year. The real estate market saw a spark of interest but sank back into inertia after rent prices went sky high. Private and corporate spending remains stubbornly sluggish. Exports, which became the sole engine of the economy with domestic demand in a deep funk, have slowed. Korea Inc. is rattling dangerously on one wobbly wheel.
The National Assembly, which finally returned to work just a month before the year’s end, is again wasting time wrangling over political issues and has not passed a single economy-related bill. The president’s plea to focus on reviving the economy is ignored as politicians and the government squander precious time arguing about a report on behind-the-scenes influences on presidential aides and how a report about the situation was leaked to the outside world. Instead of pushing ahead with reforms as he promised, Choi has to spend more time answering questions about extravagant overseas resources projects led by the previous government. Through all this time, the golden opportunity for the economy to make a turnaround has been allowed to trickle away.
The “golden hour” is a term used in emergency medical care referring to the period directly after a major accident or injury is sustained in which quick treatment can work wonders. As there is critical period to save a life after an accident, there is also one for saving an economy. The survival rate drops if emergency actions are not taken during the crucial period. That’s why the first hour is called golden.
A person suffering a life-threatening trauma requires expeditious emergency actions before he or she arrives at the hospital and receives decisive treatment. If he or she doesn’t get immediate pre-hospital emergency treatment, a trauma patient may not survive even after he or she gets to specialists. If the economy is in a serious state, it requires emergency actions to keep the basic functions working. Once it regains enough strength, the economy could undergo surgical restructuring to strengthen its fundamentals for lasting viability. Our economy has gone through that process during traumas in 1997 and 2008.
Some may say the current times don’t require such drastic, emergency measures. Analysts are of mixed minds. Some say emergency actions are needed before expediting structural reform. Others claim the economy is not in as bad a shape as in the late 1990s and in 2008. They call instead for more lasting measures. The deputy prime minister tilts toward the former diagnosis. He wants to stimulate the economy through fiscal and monetary expansion until the end of this year and launch reforms from next year. The problem is that the economy has failed to respond to his immediate stimuli. Some demand the economic team forgo its prescriptions for short-term recovery and instead go into long-term treatment.
But strictly speaking, there have not been serious stimuli, which explains why there have been few results. There was no extra fiscal spending and liquidity did not flow, even with the interest rate cut. Measures to boost real estate also failed to reach the market due to delays in legislative approval. It is wrong to say that the reform measures have not taken place because the government was too engrossed with short-term actions.
The biggest threat to the economy is its slowdown. There are complicated reasons for a structural slowdown: cyclical depression, demographic changes and limited growth in mature economies that are markets for Korean products. The government is in a bind. It must take immediate actions to ensure the ship sails at a certain pace and at the same time carry on with structural fixes to ensure a lasting trip. Unattended, the economy will lose any impetus to go on. Without structural reforms, the engine for sustainable growth will go dead. There should be no argument over whether the emphasis should be on short-term or long-term actions. Both must be carried out.
There is no problem, of course, if we wish to accept a slow-moving economy. But the economy could lose steam and the ability to pick up speed altogether. If a turning point is what the economy seeks, it should be now or never. The government must put all its resources to best use. It needs a meticulous outline to balance economic recovery and reform. Instead of applying this policy and that, it needs to come up with a clear and fast action plan and timetable and act upon them. The clock is ticking.
joongAng Ilbo, Dec. 17, Page 32
*The author is an editorial writer of the JoongAng Ilbo.
by Kim Jong-soo