Substantial aid is neededThe Covid-19 coronavirus has begun to wreck havoc on the global economy. In China, where the new strain of virus first broke out, exports in January and February tumbled more than 17 percent from one year ago. The ripples will hit Korea as a quarter of its export revenue comes from China. As infections rapidly affect all corners of the world, the global supply chain led by China is in jeopardy.
Making matters worse, Koreans are banned or restricted from entering 103 countries. Businesses cannot proceed with their plans. Showcases in the United States, Italy and Germany have all been canceled. The toll on the performance of Korea Inc. may be severe. The Brookings Institute predicted South Korea’s GDP could be shaved by 37 trillion won ($31 billion) to 147 trillion won. Standard & Poor’s also lowered its growth outlook for Korea this year to 1.1 percent.
The damage on domestic demand is more alarming. Stores are in trouble because people are working from home and refraining from outdoor activities. According to a poll by Gallup Korea, 90 percent of self-employed people have said that their income has fallen.
Fiscal and monetary authorities from the Group of Seven nations took concerted actions to lessen the damage on the global economy. Central banks in North America slashed their interest rate target by 50 basis points. Japan and Europe also went ahead with additional easing.
The government has come up with a record-sized supplementary budget of 11.7 trillion won. But the hastily-arranged package lacks speed and practicability. The rivaling parties promised approval of the additional spending plan by March 17. They will hardly have time to fine-tune the sloppy spending plan. The 2.4 trillion won earmarked for merchants and small businesses will be of little help. Cash allowances for each child aged seven and under and 2 trillion won worth of gift coupons to stimulate consumption are suspected of targeting votes in the upcoming election instead of overcoming the damage from the virus outbreak.
The National Assembly must give much more to small businesses. Bank loans should be facilitated through government funds to the state credit guarantee fund. If merchants and small- and medium-sized enterprises (SMEs) fall into a bankruptcy, the disaster can become a financial crisis.
The government must radically change its policy direction. It must stop meddlesome policies such as the minimum wage hikes, conversion of non-salaried workers to full-time positions, stifling regulations on the sharing economy, and arbitrary interventions into corporate management through the National Pension Service. It must unleash visible and invisible chains on companies to give them more room to fight the virus setback and strengthen fundamentals.
JoongAng Ilbo, March 9, Page 30