The Korean economy is peering down a slippery slope and emergency actions are necessary to avert the danger, the Korea Chamber of Commerce and Industry (KCCI) warned in its policy recommendations for the second half of the year. Consumer demand is nearly dead from the triple whammy of the Middle East respiratory syndrome (MERS) outbreak, global stagnation and sluggish exports from the cheap yen and the slowdown in China. It has not rained, but poured on the economic front.
As the KCCI advised, emergency times demand emergency measures. MERS must be quickly defeated and all-around efforts should be in place to accelerate structural reforms to improve fundamentals. More immediately, urgent stimuli actions are necessary to restore the local economy. Revenue has fallen by more than 5 percent at large retailers and halved in smaller markets from the previous year. School trips and major events have been cancelled.
The economy moves on sentiment. If left unattended, no policy actions will work in the future. Consumers must be convinced to continue with their normal lives and spending, and companies need to resume hiring and sales to bolster sentiment.
The country miraculously survived the 1997 financial crisis through patriotic economic activities that included nationwide gold donations. The actions were hardly economically sensible, but nevertheless helped the country exit the crisis with surprising speed. When the New York Stock Exchange reopened after the Sept. 11 terrorist attacks in 2001, many had expected a plunge of more than 10 percent in the benchmark index. But the losses stopped at 3 percent because individual investors refrained from selling to support the economy amid a national crisis.
We may have to resort to patriotic economics in these trying times. The police office in Gyeonggi offered to buy produce from farms in Pyeongtaek, where orders have stopped amid a scare of contamination. The ruling Saenuri Party also joined the campaign to buy produce from MERS-stricken areas.
But the consumer promotion must not stop with zones hit by MERS. Our paper recommends that the president take emergency actions like temporary tax cuts for certain items and companies to promote inventive ideas that will boost spending. There need to be more sales events to promote consumption, as well as investment in disaster infrastructure. The KCCI additionally advised temporary tax exemptions for the tourism and dining industry that has been hit hard by the outbreak.
We’ve learned the hard way to be better prepared for infectious diseases in a globalized world. We now have to work together to restore the economy.
JoongAng Ilbo, June 25, Page 30