[Editorial] Fiscal integrity matters in an economic crisis

Semiconductors responsible for 10 percent of South Korea’s manufacturing output and 20 percent of the country’s exports are in a slump. The sluggishness of top memory maker Samsung Electronics has been a rude awakening. Its first-quarter results released last week are shocking. Its operating profit more than halved from a year ago to 600 billion won ($454.8 million) in the first quarter, the smallest since 2009 amid the global financial crisis.

The impact of dismal chip exports has caused a dent on the current account. The current-account balance has been running a deficit streak for the second month in February. Although the red has narrowed from January and the government claims the country can achieve an annual profit of $20 billion this year, the phenomenon cannot be taken lightly. The country has logged a deficit for the second straight month for the first time in 11 years.

A current-account deficit streak can unsettle the foreign exchange market, a gloomy revisit to the episodes leading up to the default crisis in 1997. Exports in contraction for the sixth straight month is another worrying symptom.

Korea is vulnerable to global upsets, as it relies on the global economy. Strong buffers against external shocks are its sole defense. Public finance is essential protection. But state coffers are insecure due to big spending under the last government. National liabilities have exceeded 1,000 trillion won. Government debt has ballooned by 100 trillion won annually for the last three years. An additional 66.7 trillion won in debt is expected this year. Even under tighter policy, debt will add 182.7 billion won per day, 7.6 billion won per hour and 130 million won per minute.

Companies must endure and overcome the down cycle. They must keep up bold investments to maintain their lead in competitiveness. Choo Kyung-ho, deputy prime minister for economic affairs, visited Samsung’s Pyeongtaek campus and said the ongoing troubles go beyond the company. The government must provide support up to the level of other countries. The government must defend the country’s interests against nationalistic and protective moves of the U.S. and others. The government must make sure Korean companies are not disadvantaged in the chip, battery and electric vehicle markets.

At the same time, the government must do all it can to lessen the strain on the current-account balance and economy. It must continue with rationalization in the utility rates. The trade deficit can be reduced by $12.4 billion this year if the electricity rate is normalized. The government must re-examine expenditures so that tax spending is not wasted. Such consistent and trustful actions can help defend our economy against shock waves from outside.