1997 Again?
By Yoon Ja-young
Staff Reporter
Worsening microeconomic indices are stifling the Lee Myung-bak administration, which came into office by promising to buoy the nation's economy.
The chief policymaker of the governing Grand National Party mentioned the crisis, amid the current account deficit, inflation and low growth rate.
Yim Tae-hee, the governing party's chief policymaker who served as top aide to President Lee after his Dec. 19 election, said the current economic situation is in some ways similar to that right before the Asian financial crisis back in 1997. ``I'm concerned that the government could overlook the macroeconomic flow while concentrating on small issues. Personally, I see signs similar to those of the financial crisis that gripped the country in 1997,'' Yim said in a press interview held Wednesday. Yim also said it isn't right to put energy into public enterprise privatization issues faced with macroeconomic indices showing critical signs.
He cited surging short-term foreign debt, current account deficit, sluggish investment, rising won/dollar exchange rate and inflation as some of the urgent troubles. ``Foreign debt has increased considerably, and it seems difficult for the current account to turn into a surplus in the near future,'' he said.
Korea recorded a $1.56 billion current account deficit in April, surging from the $110 million deficit of the previous month. It has been recording a deficit for five consecutive months. Faced with the international oil prices hike, there are few things that the government can do to turn it into a surplus. The Ministry of Strategy and Finance estimated between a $7 billion and $8 billion current account deficit for this year.
``Consumer spending expansion following the raw material prices hike is behind the current account deficit. If it continues coupled with sluggish investment, it could result in weakening of the future growth engine and the increase of foreign debt,'' the Korea Chamber of Commerce & Industry said. It pointed out that unlike the Asian financial crisis, when too much investment caused current account deficit, foreign debt is growing on the raw material prices hike despite sluggish investment.
Short term debt is another big concern of the economy, as Yim pointed out. The short term debt totaled 158.8 billion at the end of last year, more than doubling from 65.9 billion two years ago. Short-term debt takes over 40 percent of the total debt. Exporters' transaction of futures and banks' arbitrage transaction are behind the growing short-term debt.
Despite expectations that the inauguration of the business-friendly President would encourage businesses to invest and thus hire more people, the job market condition is worsening. Job creation fell below 200,000 for three months in a row.
With most of the economic indices turning for the worse, however, the government seems not to have coped with things properly. It insisted the weak Korean won would boost exports, and thus achieve the seven percent economic growth target, but it only added inflation pressure on imported products.
The administration, which has focused on growth, is likely to put first priority on taming of inflation. ``The economic policies will focus on stabilizing livelihood of people and prices,'' Cho Yun-sun, the spokesperson of the governing party said.
Some analysts advise that the central bank should raise the interest rate. ``The interest rate hike can contract the domestic demand, but if things are left as they are now, further inflation would hurt domestic demand even more,'' said Shin Dong-jun, an analyst at Hyundai Securities, adding that there had better be an interest rate hike.