No one on the bridge

The economy is in tatters. Its condition is actually worse than in the late 1990s when it required an international bailout. Industrial activity, consumption, and investment have all slumped. Sluggishness in exports has become a norm. The stock market is crashing. Corporate restructuring has retreated. The bureaucracy is back to its old habits. Korea has ducked, waiting for the storm to pass. But the storm is going nowhere.

In fact, a bigger storm is looming across the Pacific. Americans will soon head to the polls to pick their next president. Due to a last-minute reversal of fortune, Republican candidate Donald Trump has a chance of winning. If he does, the shock waves could be stunning.

Trump himself said his winning of the presidency would deal as big a shock to the world as the British vote to leave the European Union — or bigger. He has uttered no truer words throughout the campaign.

The impact on the Korean economy is likely to be immense. In December, the U.S. Federal Reserve is expected to lift interest rates. The U.S. economy in the third quarter grew at a faster-than-expected pace of 2.9 percent. Monetary tightening could come quickly. Economists and bankers on Wall Street are already pronouncing the end of a deflationary cycle, betting on higher interests rates and a strong U.S. dollar.

If Trump’s triumph is followed by U.S. interest rate hikes, the global financial markets will be rocked. Volatility on international markets will send a tsunami toward the Korean economy. The bearish stock market could be routed. Our minor real estate market bubble could burst. Our towering levels of household debt could turn into a mountain of bad loans. We cannot imagine the catastrophe.

Somebody should be doing something to prepare for these dark contingencies. But there is no captain on the bridge. The ship is heading into a perfect storm, but the crew is below deck dealing with a tawdry political scandal.

The epicenter of this crisis is politics. Political uncertainties must be removed in order to save the economy. What business fears most is uncertainty. People do not spend when they are unsure about their futures. Companies do not invest in fear of losing their money.

The surprise cabinet reshuffle was another major misstep by the president. President Park Geun-hye boosted uncertainty at a critical period and lost her last chance to restore market confidence. The procedures were all wrong. The timing stank. Her personnel choices were god-awful.
The opposition has become even more enraged and condemned the partial reshuffle as an insult. It was: the president didn’t even discuss it with them in advance. The president is naïve enough to think she can win favor through a surprise reshuffle and save herself from a shameful confession. The prime minister nominee is not going to be confirmed by the opposition. The market remained cold about the president’s rash action. No move can work if sincerity is lacking from start to finish.

Park’s timing was too sudden. As the scandal over Choi Soon-sil’s abuses has reached its peak, the people should have had time to release their anger. The pot needs to be brewed to the boiling point.

The motives behind the reshuffle are also doubtful. Recruiting a former policy architect for liberal President Roh Moo-hyun to head the cabinet on behalf of the disgraced president would have had been motivated by the assumption that the opposition would be contented and bought over. But the opposition’s compliance would surely be regarded as granting a pardon to the president. Therefore, the opposition cannot be forced to accept the choice of one of its own people. The Minjoo Party can hardly go along with the nomination at a time when public disapproval of the president is at its peak.

The splinter opposition People’s Party, too, cannot easily comply. It dislikes the president as well as the pro-Roh faction. Ahn Cheol-soo, the founder of the party, is vehemently calling for the president to step down. The nomination of Financial Services Commission Chairman Yim Jong-yong as the new deputy prime minister for the economy is also a poor choice. The lifelong bureaucrat has spearheaded corporate restructuring pretty well, but he had served a key post in the incumbent administration.

An economic crisis is like a serious illness: it cannot be cured if the timing is all wrong. But there is a chance. An arrangement such as the coalition government under former President Kim Dae-jung could be an idea. To do something like that, the president must fully yield.

The markets responded coldly to the cabinet reshuffle. The won fell sharply and stock prices tumbled. Foreign investment banks assessed that the Korean government’s economic policy had lost steam. Moody’s Investors Service warned of a downgrade in Korea’s sovereign credit rating. The political mess is taking a heavy toll on the economy.

JoongAng Ilbo, Nov. 3, Page 34

*The author is an editorial writer of the JoongAng Ilbo.

Yi Jung-jae