A worrying deficit

Korea’s current account balance went into the red after enjoying surpluses for 83 consecutive months. The last time the country saw a deficit in the current account balance was April 2012, at the peak of the financial crisis in Europe. According to the Bank of Korea, our current account balance — which takes into account the balances in trade, services and incomes — was a negative $660 million in April. A trade surplus that month could not make up for outflows from listed companies’ dividend payouts to foreign investors. The government was not bluffing when it warned of the possibility of a deficit in the current account.

Such a deficit carries great significance for Korea. As the country has a small and open economy, things run smoothly only when it has a surplus in the current account. We learned painful lessons from the 1997 Asian economic crisis. That’s why the government has since been aggressively pushing the policy of bolstering our sovereign credit rating by expanding its foreign exchange reserves.

The government attributed the deficit to dividend payments to foreign investors in April, when listed companies hold their annual shareholders’ meeting. The government said the balance will return to the black in May. That could be true. Listed companies paid a total of $4.99 billion to their foreign investors in April, which ate up most of our trade surplus of $5.67 billion in the same month.

But that’s not the whole story. Dividend payouts to foreign investors actually decreased by 22 percent on year while the trade surplus plunged 41 percent. That means the current account deficit was actually caused by sluggish exports more than dividend payouts. The fact that our exports have been declining for six months in a row is not good news given our manufacturing-centered industrial structure. If this trend continues, our economy cannot help but shrink.

Nevertheless, President Moon Jae-in insists that our economy is booming. The administration still adheres to an income-led growth policy that has backfired. In the meantime, various stakeholders, including the combative Korean Confederation of Trade Unions, are flexing their muscles to pursue their own interests.

Economic players can benefit only when the economy expands. The current account deficit signals a looming crisis. The government must recognize the grim realities and establish policies to help put Korea Inc. back on track. Crises can offer opportunities. The country desperately needs wise leadership that can do the job.

JoongAng Ilbo, June 6, Page 26