Fundamental solutions are needed for the economy

President Yoon Suk Yeol came in office on May 10, 2022 amid multiple crises, including the soaring energy and commodity prices from Russia’s invasion of Ukraine in February 2021 and lush liquidity in the financial market from the previous administration’s massive spending after the onslaught of the Covid-19 pandemic. Central banks around the world, including the U.S. Fed, also raised their policy rates rapidly. As a result, the Korean economy had to confront the “four highs” in oil and consumer product prices, interest rate and exchange rate. But inflation fell from 5.4 percent in May 2021 to 3.7 percent in April 2022 and no chain bankruptcies of private companies or foreign exchange crisis took place.

The Yoon administration deserves praise for the relatively soft landing of the economy. His government was on a crusade to normalize all the abnormalities orchestrated by the Moon Jae-in administration. The conservative government ended the ideology-driven administration’s off-track rush to scrap nuclear reactors, eased multilayered regulations on the private sector, and streamlined government spending.

But the general public is still stingy in appreciating the Yoon administration. In a JoongAng Ilbo survey, 35.2 percent said their livelihood got worse while only 8.6 percent said it improved. 54.6 percent found no difference, probably due to global recession. In the meantime, household debt has snowballed to a whopping 1.87 quadrillion won ($1.40 trillion). As many people cannot pay back their debt, they have to turn to the non-banking sector to get loans.

The slump is being fueled by a crisis in the manufacturing sector, as seen in the reduction of 97,000 jobs in April alone, the largest in 28 months. The slowed production and export in the sector adversely affect the balance of current accounts. The $270 million in surplus in March could be a good sign, but it owed much to the increase in the dividends from our companies’ corporate activities overseas. In fact, the balance of goods has deteriorated for the sixth month since November last year. Export also has declined for seven consecutive months from last year and the balance of trade has been in the red for 14 months in a row. The blame can be put on Korea’s sluggish export to China and depression in the chip sector, but basically it resulted from the underperformance of our manufacturing sector.

The fundamental cause of the economic crisis is the trouble on the manufacturing and export front, the two pillars of our economy. We urge the Yoon administration to do its best to find an effective solution to weather this storm.