Wishful thinking doesn’t helpLehman Brothers, the world’s fourth largest investment bank, filed for Chapter 11 bankruptcy protection 10 years ago today. The fall of the financial behemoth triggered shockwaves across the globe. Faced with the biggest challenge since the Great Depression, major economies around the world led by the United States acted in sync to push loose monetary policies to new levels through unconventional quantitative easing and zero interest rates. South Korea joined the universal front and combated the global financial meltdown with unprecedented fiscal and monetary expansion.
A decade later, the global economy and Korean economy have decoupled. The U.S. and EU economies have strengthened to enable normalization of rates and monetary policy. Korea cannot move at the same pace as economic conditions have worsened with alarming numbers in employment and investment. The external front is equally challenging due to a trade war between the United States and China. The manufacturing sector has slumped, bringing down both business and consumer sentiment.
The government alone is upbeat. According to a monthly report on economic conditions, the Ministry of Strategy and Finance maintained the economy was in steady growth due to recovery in exports and consumption. It raises questions on what data the government is looking at as most of the latest data suggests a depressed economy. The Korea Development Institute, a state-run think tank, also warned of downward pressure on the economy.
It is obvious that the government’s income-led growth policy has wiped out jobs and businesses of the self-employed. Mainstream economists as well as advisers to the president beseech the government to moderate the policy to no avail. The ruling party’s policy head, a former Bank of Korea governor and a policy chief under liberal president Roh Moo-hyun, joined the chorus demanding a change or moderation in the income-led growth drive.
There can be no serious discussion because any criticism of the income-led growth policy is taboo. The deputy prime minister for economy, Kim Dong-yeon, floated the idea of moderating the increases in our minimum wage, but he has been ignored. The president sought deregulation of internet banking, big data and medical services to achieve some kind of breakthrough, but it has been opposed by civic groups and some ruling party members.
The government must start from the beginning. It must send a sure signal to the market that it will turn this boat around. The economy is sinking fast. This is no time for wishful thinking.
JoongAng Sunday, Sept. 15, Page 34