Meet the Post-IMF Era With Caution

With yesterday＇s passage of the ＂Letter of Intent for 2000,＂ composed by the Korean government after consultation with the International Monetary Fund (IMF), through the IMF Executive Board, the IMF’s supervision over the Korean economy since late 1997 came to an end. Although $3 billion out of the $19.5 billion in IMF loans has yet to be repaid, Korea can now draw up and manage economic policies independently without consulting the IMF.

In this respect, the current government deserves a good mark for its economic performance in the first half of its administration. The general economic indices have become satisfactory, including growth, prices, international balance of payments, and the jobless figure. The overall reforms of the economic system - in the finance, corporate, labor and public sectors - have shown good results. The country’s early graduation from the IMF system underlines the fact that the government has done a good job.

Notwithstanding this good news, anxiety among the general public is spreading. Some people even argue that there may be another economic crisis around the corner. Even though such a concern may be too pessimistic, the Hyundai Group＇s financial instability lies at the roots of the public anxiety in view of Hyundai＇s size and importance in many business areas. Despite the government＇s optimistic view, not many people take it at face value, perhaps because they remember what happened to the giant Daewoo Group. The money market has been experiencing a crunch for quite some time despite the release of a large volume of money. This is because the mediation function played by banks has weakened a great deal due to the lack of fine-tuning in policy coordination and the crisis of confidence. The polarization of the economy also contributes to the argument of those who believe another crisis is imminent. Declining industries are on the verge of calling it quits, which gives rise to concerns that this might start a vicious cycle whereby banks end up with more bad loans in their hands. Another factor causing anxiety is the current slowing of exports. If large companies that are doing well happen to hit a fall in exports, there will be no way out for the Korean economy. Furthermore, the dispute over foreign currency reserves has flared up again. The foreign exchange reserve of $94 billion is the largest in Korean history, but the percentage of short-term debts grew from 20.6 percent in 1998 to 33.5 percent in June 2000. Besides, what foreign investors do with their $84 billion in the Korean stock market is a factor that may tilt the equilibrium.

The range of policies available to the government has been narrowed down quite a bit. In addition, there are some Central and South American countries that have experienced a recurrence of financial crisis after their period of IMF management came to an end, forcing them to re-enter the IMF system. The Korean government and other players in the economy should therefore remember that graduation from the IMF system does not mean that Korea has been liberated from the possibility of crisis. Instead they should assume a sober attitude and see this as an opportunity to turn over a new leaf.

by Bae Myong-bok