ed In safety mode

Economic stability is top priority in 2012

The Lee Myung-bak administration has two goals for next year’s economic policy: to revitalize the economy and stabilize people’s livelihoods. These goals don’t seem to be easy to achieve as the outlook is getting gloomier due to the eurozone fiscal crisis and its impact on the world economy. That’s why the government lowered its growth projection to 3.7 percent for 2012 from this year’s 3.8 percent.

It is inevitable that the economy will lose steam amid mounting uncertainties. South Korea is feared to bear the brunt of a global economic downturn because of its heavy reliance on foreign trade. The Ministry of Strategy and Finance predicts the nation’s export growth rate to dive from this year’s 19.2 percent to 7.4 percent in 2012.

In this situation, the question is how to reinvigorate the economy. Every time a global or regional economic crisis erupts, policymakers usually come up with measures to boost local consumption. Again, the ministry has promised to expand domestic demand to offset the slowing export growth. It plans to beef up small- and medium-sized enterprises, the self-employed and the services sector.

However, as seen in past experiences, it is not easy to stimulate the economy through stoking domestic demand. The total household debt has already reached 900 trillion won ($796 billion). People have been undergoing difficult times as their purchasing power continues to fall amid strong inflationary pressure and job cuts. The administration cannot make any progress in increasing local consumption by taking stopgap measures.

We urge policymakers to bring a structural change to the economy. The nation can no longer maintain sustainable growth without changing the structure hit by high costs and low efficiency. By taking a more fundamental approach, the government will be able to raise the nation’s growth potential.

The Lee administration is trying to put the economy in safety mode to minimize the fallout of a looming global financial and economic turbulence. This effort is crucial to ensuring economic stability. Korea alone cannot shine in its performance in the face of a worldwide downturn. As such, the nation needs to refrain from taking reckless pump-priming measures at the expense of stability.

Policymakers might be under stronger pressure from politicians for economic stimulus as there will be general and presidential elections next year. Candidates are expected to make undue commitments to ramp up spending on welfare programs and pork-barrel projects. These political factors will be one of the serious challenges threatening the country’s economic and fiscal soundness. Politicians had better not make irresponsible and populist campaign promises only to woo voters. Bureaucrats should not be much swayed by politics.

It is important for the authorities to take coherent macroeconomic policies. They are required to work together with the central bank to faithfully meet the inflation target of 3.2 percent, down from 4 percent this year. Needless to say, price stability is key to sustainable economic growth. They should also cooperate with businesses to generate more jobs. Job creation is the best policy of boosting economic well-being, especially for the poor and underprivileged. We hope the safety mode will produce successful results.