Not hearing the alarm
The author is a columnist of the JoongAng Ilbo.
I received an opinion piece from a former economic policymaker. Although he was full of concerns about the economy, he did not wish to publish it under his name. So I will share aspects of his writing. He served in the presidential office under President Kim Young-sam, who faced an unprecedented financial crisis at the end of his term in 1997. His successor, President Kim Dae-jung, had to comply with the stringent restructuring demands of the International Monetary Fund (IMF) in return for an international bailout. He stayed in the new administration to oversee corporate restructuring, including mega-mergers of chaebol. At the time, he gained an ability to identify looming economic crises.
He said he can perceive signs of crisis everywhere. Other retired and active government officials and businessmen say the same thing. What he can advise is nothing new. Nevertheless, I will relay his words with the slim hope that they might reach ears at the Blue House and in the government.
On Oct. 29, 1998, Nomura Securities’ Seoul office issued a watershed report sounding alarm bells about Daewoo Group, the second-largest chaebol in Korea at the time. Its four-page report unleashed similar warnings from other institutions, both at home and abroad. Ten months later, Daewoo came down. After it became the first Korean corporate behemoth to fall, the too-big-to-fail myth also collapsed.
Like it or not, the signs are ominous. Korea alone is doing poorly among developed economies. The United States grew 3.2 percent on an annualized rate in the first quarter and China beat expectations by expanding 6.4 percent on year. The government still blames volatile external factors. It has ratcheted up optimism. Deputy Prime Minister and Finance Minister Hong Nam-ki said the government won’t revise down its growth estimate for this year from its targeted 2.6 percent to 2.7 percent.
To meet the target, the economy must gain more than 1 percent quarterly in the remainder of the year. That looks unlikely. President Moon Jae-in and government officials repeat the mantra that our economic fundamentals are strong. The deputy prime minister for the economy two decades ago claimed Korea was safe from the Asian financial crisis because its fundamentals were strong.
What offers some comfort is our foreign-currency reserves of over $400 billion, the under 30-percent ratio of short-term foreign debt, our overseas assets exceeding debt and the robust foreign appetite for our national bonds. But they cannot ensure the security of the Korean economy against crisis. As the Korean won is not a key currency, its economy can be shaken any time it loses support from the United States and Japan. When Korea fell into a liquidity crisis 20 years ago, its relationships with Washington and Tokyo were as bad as they are now.
A crisis can strike when one lets down one’s guard. Alertness can be the best protection against a crisis. The 1998 Nomura Securities report served as a turning point. With the fall of Daewoo, the Korean economy was saved. The government, corporate sector, workers and people in general all chipped in to do their part. Companies endured painful restructuring and workers accepted layoffs. The government accelerated reforms.
What about now? There seems to be no way to jump-start the economy. Both the Blue House and the government appear to lack the will to fight. Moon vehemently refuses to admit the economy is in trouble. The government hopes the budget will boost the economy. Militant unions are enjoying a heyday. Companies are increasingly taking their money and production facilities overseas. The Nomura Securities report this time may not have a happy ending.
JoongAng Ilbo, May 2, Page 30