By Lee Hyo-sik
Staff Reporter
The government has created confusion over the direction of its economic policies in recent weeks as it has fallen into a dilemma over how to tame surging inflation and spur economic growth at the same time.
President Lee Myung-bak has said that curbing rising consumer prices is the government's top economic policy priority, mindful of his falling popularity since his inauguration a month ago as people are increasingly grappling with economic hardship owing to the high costs of goods and services in the wake of surging raw material prices.
In contrast, Strategy and Finance Minister Kang Man-soo has said he will place top priority on achieving this year's economic growth target of 6 percent at the expense of inflation, sending conflicting signals to businesses, investors and consumers.
Analysts say the ongoing policy discord within the government is increasing economic uncertainties, warning that companies could become more reluctant to expand investment while consumers may reduce spending.
On Wednesday, Kang reiterated that the government will continue to place top priority on growth ahead of price stability, refuting earlier media reports of President Lee's remarks weighing taming inflation over economic expansion.
``The President simply meant that the government will try to curb surges in consumer prices to ease households' financial burden amid high prices of oil and other raw materials. His remarks did not mean that reining in inflation is more important than growth,'' Kang told the audience at a local forum.
However, President Lee said in an interview with Asian business dailies last Saturday that taming inflation is the top government policy goal even at the expense of slow growth and less job creation. He said suppressing inflation is more important than growth.
Also, at a series of meetings to rein in inflation over the past few weeks, the President instructed his ministers to aim economic policy targets at controlling rises in consumer prices, saying price stability should come first.
But apparently, the top economic policymaker Kang has not given up his growth-first policy stance.
Escalating Confrontation Over Interest Rate
Also, Kang is stepping up a fight against the Bank of Korea (BOK) over the latter's monetary policy. He said the gap in key interest rates between Korea and the U.S. is widening, calling on the central bank to cut interest rates to boost the economy.
``Under the law, the strategy and finance minister can veto the central bank's Monetary Policy Committee's decision. The central bank should also act in a way to keep the won's value low against the dollar to increase outbound shipments and improve the current account balance,'' he said.
In a bid to reduce snowballing current account deficits and boost exports, Kang has said the government would overlook the weak Korean won against the dollar even though it will make imports more expensive for domestic consumers and build more inflationary pressure on the economy.
In line with his remarks, Vice Strategy and Finance Minister Choi Joong-kyung said Wednesday that it is not desirable for the won to appreciate rapidly against the dollar, saying that the government may intervene if the local currency gains ground at a fast pace.
``It is not good for the won to depreciate rapidly against the greenback and other currencies. It is even worse if the won appreciates fast. In principle, the foreign exchange market should be left to move in both directions, but it is the government's responsibility to help stabilize market movements,'' Choi said.
Upon his remarks, the won lost ground against the greenback Wednesday, closing at 986.8 won, down 10.5 won from the previous rate.
A day earlier, the local currency closed at 976.3 won against the dollar, up 20.9 won from Monday's close, after BOK Governor Lee Seung-tae's remarks that the central bank will keep the key interest rate unchanged. The market had expected the BOK to show signs of cutting rates.
``There are conflicting signs for the interest rate decision. For widening current account shortfalls and rising inflation, we need to raise rates. But the economic slowdown is telling us that we need to freeze or cut rates,'' Lee said, hinting at no major shift in the bank's monetary policy.
On March 17, the won shed 31.9 won to close at 1,029.2 won per greenback, its weakest level since Dec. 12, 2005, when it traded at 1,033.7 won. The currency also fell to its weakest point in three years and five months against the Japanese yen, closing at 1,061.58 won per 100 yen.
Since then, the won has gained some ground against the dollar on increasing foreign buying of local shares.