Are we prepared?Panic unfurled on Wall Street, sending stock prices to their biggest tumble in 12 years on Monday. The Covid-19 coronavirus has infected and destabilized the global economy. For the first time in 23 years, a circuit breaker — a brief trade suspension to cool off the stock market — was activated. The ripples shook stock markets around the world. A second shock came after oil prices crashed by nearly 30 percent because oil producers failed to reach an agreement on an output cut despite lethargic demand. The vicious cycle of the economic shock — in which a crisis in the economy leads to a financial crisis — may be in action.
The Korean market also is in the eye of the storm. Kospi has rebounded after Monday’s rout. But against its peak in January, it has lost more than 13 percent. The U.S. dollar has come down from 1,200 won but looks unstable. Seoul authorities have vowed stabilization actions including restricting short sales. But more aggressive and preemptive measures, such as a temporary ban on short selling, are necessary to prevent a financial scare from spilling over to a broader economy.
Although the surge in new infection cases has eased, the threat of the Covid-19 still weighs heavily over the society. The outbreak has only started in other continents and countries. If every country is engrossed with a battle against the epidemic, the global supply chain cannot work. Koreans are even shunned or restricted from entering over 100 countries. The setback may be greatly damaging to our export-reliant economy.
Today’s conditions may actually be graver than during the times of crisis in the late 1990s and from 2008 to 2009. During the liquidity crisis in late 1997, Korea was able to get help from international lenders and other countries in return for restructuring. During the global financial crisis of the late 2000s, fiscal and monetary tools were relatively sufficient. But few instruments are left.
Moreover, we have a government that cannot even handle face-mask supplies. The presidential office, central bank, Finance Ministry and financial authorities must organize an emergency task force to control the situation.
The Financial Times said the world economy is headed to a global recession. When the global economy hits a downhill, the Korean economy is in danger. Policymakers must do away with unrealistic ideas and get serious about the economy by pumping life into companies.