Economic Clock Shows Hands Point to Currency Crisis Levels
By Yoon Ja-young
Staff Reporter
Economic indices are deteriorating, offering an eerie reminder of what happened in the run-up to the Asian financial crisis a decade ago.
A recent CBS survey showed around half of Koreans think the economy is worse now than a decade ago when Korea turned to the International Monetary Fund (IMF) for a bailout program.
The most notable is the current account deficit. The account, which has been in surplus for the previous decade, is expected to turn into deficit of an estimated $7 billion to $8 billion this year, according to the Ministry of Strategy and Finance.
Rep. Yim Tae-hee, the governing Grand National Party's chief policymaker, said the current economic situation is in some ways similar to that right before the Asian financial crisis back in 1997. Yim cited current account deficit, short-term foreign debt, and problems in non-bank lenders as crisis factors.
Short term foreign debt, which was another trigger of the financial crisis along with the current account deficit, amounts to 42.8 percent of the total foreign debt now. Korea has been a creditor country since 2000, but now it could turn into a debtor country soon if debt accumulates.
Investors are unloading stocks. The main index KOSPI, which once soared above 2,000, lost over 25 percent since last October. Foreign investors sold for 25 consecutive days in Seoul bourse, selling near 7 trillion won in shares.
The stock market crashed back in 1997, losing over 40 percent.
While the economy enjoyed relatively stable growth amid low inflation for the last few years, consumer price growth rate is nearing what it used to be a decade ago. Consumer prices rose 5.5 percent last month, the highest level in over nine years. Production prices also rose over 10 percent in June, the highest level since 1998 November.
The sluggish job creation, which fell below 200,000, is also coming close to when Koreans experienced massive layoff for the first time in the country where life-time employment was a norm.
The most worrisome is the government's pouring out dollars from the foreign exchange reserve to intervene to stem the won's slide. Propping up the currency depleted the reserves 10 years ago and pushed the economy to the brink of bankruptcy. The then-Kim Young-sam government went out hat in hand for financial support, asking the International Monetary Fund to move in.
Lee Han-ku, the ruling party's lawmaker, criticized the government's intervention in the foreign exchange market. ``One of the biggest drivers of the financial crisis was the government intervention _ it wasted foreign exchange reserves while bustling to fight against the speculators in the market,'' Lee said in a radio interview Friday, showing concern that the government may be making the same mistake again.
``The short-term foreign debt which should be paid back within a year amounts to 80 percent of our foreign exchange reserve. Nobody knows what it will be like if the foreign capital in stock market (suddenly) moves out.'' Korea had a liquidity crisis as foreign capital suddenly flew out of the country in bulk back in 1997.
The government's energy contingency plan to cope with the international oil price hike is also a copy of the measures one or two decades ago. Moody's Economy.com recently pointed out that Korean government is not focusing on long-term, future-oriented energy saving plan.
Cheong Wa Dae, meanwhile, is trying to define the current economic problems as an ``oil shock,'' emphasizing that the negative factors are coming from outside rather than internal mismanagement.
Internet posts, however, pointing out similarities between now and a decade ago are spreading fast among Internet users. It cites negative economic indices and the fact that the current Strategy and Finance Minister Kang Man-soo was a vice minister back then, as well as non-economic factors like the baseball player Park Chan-ho pitching well after a slump.