Ominous downturn

Preemptive economic management is crucial

Despite the widening domestic imbalance, Korea has been the envy of major economies for its quick escape from worldwide recession. But the latest economic statistics, including industrial production and business survey indexes, indicate the time seems to have finally come when the nation can no longer be free from the global slump.

It’s tempting to regard the current downturn as a temporary phenomenon, but various forecasters, including the IMF, say Korea’s growth rate would notably slow in 2011 from this year.

Even in better times, the nation’s economically weak ― the mid- and low-income brackets ― have seen little benefit, as the hefty stimulus spending and macroeconomic policies, including keeping the won currency weak, worked mainly for the good of large, exporting companies. The shrinking economy is even worse news for the working poor, who are usually the last to enjoy the benefits of recovery and the first to feel the pains of recession.

So it’s time for policy-makers to rack their brains on how to minimize the fallout of a prolonged global recession on already troubled Korean households, through preemptive economic management. Unfortunately, their policy tools appear extremely limited.

Most worrisome in this regard is Seoul’s increasingly narrowing maneuvering room for its foreign exchange policy, especially because of its status as the host country of the G20 summit next month. The G20 finance ministers’ meeting in Gyeongju last week managed to ``stitch up” the gaping currency war among major powers, but few experts, both local and foreign, believe it will last long, especially when the United States is about to make another massive ``quantitative easing” ― economic jargon for printing dollars.

On the one hand, Korea may not be able to artificially keep its currency weak, as competitors in global markets, including Japan, take issue with devaluation, calling the nation a ``second China.” This in turn hampers the Bank of Korea’s ability to raise interest rates to fight inflation for the sake of maintaining a low currency value to help export industries, the country’s main engine of growth.

Bearing the brunt of consequent stagflation ― inflation amid a stagnant economy ― are the working poor.

The upcoming G20 summit should be an occasion for Seoul to maximize its economic interests amid a global currency war, not to remain complacent with an empty chair status.