A dangerous scenario
The author is a columnist at the JoongAng Ilbo.
Markets are guileless. Prices fluctuate from shocks both internal and external. Korea’s stocks and its currency have been battered since last Friday after Tokyo officially removed South Korea’s preferential trading status on alleged security grounds. President Moon Jae-in vowed not to yield to Japan’s economic retaliations for Supreme Court rulings on wartime forced labor.
The fluctuations on our bourse began with a trade war between the United States and China that seems to do nothing but deepen. But what really pulled the trigger was Tokyo’s removal of Korea from a so-called white list of countries eligible for special treatment in trade. Korean equities and its currency are this year’s worst performers among developed economies and within Asia, which means Korea’s fundamentals have weakened that much.
Many have become skeptical of Asia’s fourth largest economy. Harvard University professor Robert Barro declared President Moon’s income-led growth policy “not a good idea.” The concept was “silly stuff,” according to Arthur Laffer, an economic policy adviser for the Reagan administration. In a report last week, global investment bank CLSA said the Korean stock market was being wrecked because investors have become pessimistic about the anti-market policies of the Moon administration. In an opinion piece, Bloomberg News noted that South Korea must do more than cut interest rates to save its economy, which has turned into a “doghouse” due to “socialist experiments” by Moon over the last two years as they have “sapped the animal spirits from the once-vibrant economy.”
None of the unconventional policies of the Moon administration has gained trust from international organizations. The International Monetary Fund (IMF) and the OECD have been repeating similar advice over the last two years. They first recommended restructuring the labor market as well as deregulation for longer-term growth followed by fiscal and monetary easing. But the government neglected the politically risky restructuring, labor and regulation reform plans and instead resorted to fiscal expansion.
Seoul’s response to Tokyo’s export curbs has been equally nonsensical. The response simply repeats textbook notions of localizing the supply chain and diversifying the sources of its imports to lessen reliance on Japanese products and encourages a consumer boycott to boost morale. Seoul’s new cards are all double-edged. If it withdraws from a military intelligence sharing pact with Japan, that could draw U.S. attention to its two allies. But South Korea could end up as a loner if the United States sides with Japan.
Conducting a military exercise near the Dokdo islets could also be risky. The Dokdo Foundation webpage explains well why police — not soldiers — have been defending the disputed islets. “Military troops are stationed in conflict or danger zones. If soldiers defend Dokdo, the international community could misunderstand the area as a conflict zone and give an excuse to Japan to send its Self-Defense warships. The police presence underscores that the territory falls under Korea’s jurisdiction.”
The Blue House and progressive front have turned defensive. They disallow any criticism of government policies. They accuse conservatives of spreading rumors about an economic crisis to attack the government’s income-led growth policy. Any talk of economic peril was deemed a challenge to the government and its policies. When markets crashed on Monday, the Blue House warned the media not to hype up any economic crisis.
Most worrisome are the intentions of the president. Moon said out of the blue that if the two Koreas could join forces on the economic front, they could easily outrun Japan. His comments drew the scorn of the opposition. Additionally, the remarks were made at a senior secretarial meeting at the Blue House and were read from script. This was not a slip of the tongue.
In March, Moon Chung-in, a controversial special adviser to the president on foreign and security affairs, said Moon was betting heavily on his peace initiative for the two Koreas to tackle economic hardships. “Without a diplomatic breakthrough, the president could face an uncertain future in the general election next year,” the adviser said. Last week, the ruling party’s think tank, the Institute for Democracy, distributed a report saying a hard-line response to Japan’s export restrictions could play favorably for the ruling party in next year’s elections. Moon’s comments on inter-Korean cooperation also could be aimed at bringing North Korean leader Kim Jong-un to Seoul for a summit next spring.
I hope what former Seoul mayor Oh Se-hoon said about the ruling party proves to be wrong. He said that if the government grants a special pardon to former President Park Geun-hye in exchange for a state visit by the North Korean leader, it would help the ruling party win next year’s legislative election. If the president has any intention of using the Korea-Japan spat for election gains, he would utterly lose public confidence. Without public support, no wars can be won. U.S. President Abraham Lincoln wrote a letter to Union General George Meade — as he hesitated to take the command to fight the Battle of Gettysburg — to assure him that he would bear the onuses should the operation fail. Thanks to the show of belief from the commander in chief, the union won the battle.
JoongAng Ilbo, Aug. 7, Page 31