An admonition from the KDI

As expected, the Korea Development Institute (KDI) has lowered its projections for our economic growth for 2018 and 2019. The government think tank expected this year’s growth to be 2.7 percent and next year’s 2.6 percent. Such gloomy forecasts are in sync with a number of other economic institutions, including the International Monetary Fund.

The KDI predicted that the corporate sector’s investments will precipitously drop amid noticeably slowed domestic demand and exports, which will surely push our growth down this and next year. The institute’s dismal assessment suggests that our economy has entered a downward spiral in sharp contrast with the Blue House’s reassurances that the public will be able to taste the fruits of the government’s push for so-called income-led growth next year.

The KDI’s diagnosis is very realistic and it accepted theories about an economic crisis facing the nation. The think tank highlighted the fact that, with an increasing likelihood of a global recession, our manufacturers are increasingly losing their competitiveness in exports, not to mention the difficulties of our government in maintaining the country’s solid growth by revitalizing the economy for the long term. The institute stressed the importance of the government’s role in devising policies to help achieve sustainable growth for our economy.

The KDI also advised the Moon Jae-in administration to maintain the current pace of its eased fiscal spending for the macroeconomic management of the economy. In other words, it is not the time to raise interest rates. Yet the think tank did not give high scores to the government’s hefty short-term stimuli packages to resuscitate the economy. Instead, it argued that surplus tax revenue should be spent to restructure our economy, not on quick fixes. At the same time, it urged the government to expand the social safety net and reinforce retraining programs for workers.

The think tank used a rare phrase, calling for a “demonstration of policy leadership.” We have never seen such a provocative phrase in its economic outlooks over the past years. The expression rings alarm bells as it admits confusing economic policies pursued by the government. We are embarrassed to see a government think tank have to worry about a lack of government leadership in establishing economic policies.

JoongAng Ilbo, Nov. 7, Page 30