By Yoon Ja-young
Staff Reporter
The government is expected to aim its economic policy targets at taming inflation from pursuing 6 percent economic growth, following President Lee Myung-bak's remark that suppressing inflation should come first.
The steering will bring changes in various economic policies, including foreign exchange and interest rates. The deviation, however, would be temporary and the high growth could be pursued anytime after the election in April.
The government has been sticking to the 6 percent economic growth target, lower than the President's original pledge of 7 percent growth, despite numerous economists' criticism that such high growth isn't plausible for a developed economy like Korea's.
The policymakers, however, are likely to change their attitudes given the President's remark. President Lee said in a joint interview with local economic dailies Sunday that taming inflation is more important than growth.
President Lee, who won a landslide election victory last December by pledging to be the relief pitcher of the economy, has been suffering from falling popularity recently even though only one month has passed since his inauguration. External negatives, especially global inflation, have been tarnishing his image as an economic specialist.
Dubai crude, Korea's main import, is hovering at around $100 per barrel for the first time, and global crop prices are also recording new highs. According to the central bank, production goods prices rose 19.3 percent in February compared with a year ago, recording the highest rise since October 1998. Raw material prices also rose by 45 percent for two consecutive months.
If neglected, inflation pressure will make the Grand National Party lose votes of the working class in the general elections in April. To tame inflation, the President ordered ministries to manage prices of 50 daily necessities, despite criticism that the government is intervening in the market.
Upon President Lee's remark weighing taming inflation over economic growth, the government is expected to change attitudes in a number of economic policies. It isn't likely to tolerate weakening of the Korean won for expanding export anymore. The Ministry of Strategy and Finance has implied that it would tolerate weakening of the national currency against the globally weak dollar as it helps exports. Since the weakening won would add to inflationary pressure by raising prices of imports for local consumers, it won't be neglected limitlessly.
The ministry also has been pressuring the Bank of Korea to cut interest rates to boost the economy, but it won't as it would aggravate inflation.
However, some analysts estimate President Lee's remark to be a strategic gesture for the elections. The government may push for the growth-oriented policy again if the Grand National Party wins the election.
Regarding the President putting inflation over growth, the spokesperson of the ministry said the ministry isn't considering lowering the economic growth target yet. ``Growth and inflation are two important issues we cannot give up. We'll manage the economy considering both,'' the spokesperson said Monday.