Cabinet Needs Market Confidence
By Kim Jae-kyoung
Staff Reporter
The incoming top economic policymakers will have to show strong leadership and strengthen coordination between ministries in order to carry out economic policies that focus on restoring confidence in the market, according to market experts.
They stressed that if the two fail to restore confidence, none of the bailout and stimulus measures will be effective in helping stabilize the financial markets and stimulate the economy.
On Tuesday, President Lee Myung-bak tapped former Financial Supervisory Committee (FSC) Chairman Yoon Jeung-hyun and Export Import Bank of Korea CEO Chin Dong-soo as strategy and finance minister and Financial Services Commission chairman, respectively, to replace the outgoing Kang Man-soo and Jun Kwang-woo.
Kim Eng Tan, S&P analyst responsible for the Korean sovereign credit ratings, said that the most urgent task for the new economic team is to restore confidence in the market.
``In this respect, the objective of the Korean government vis-a-vis the financial system must be to ensure stability of the key institutions and markets. Ensuring credit flow to viable borrowers is another important objective,'' the Singapore-based credit analyst told The Korea Times.
``Moreover, the challenge faced by the Korean financial system is a global one. Hence, while the government's role is important, achieving the above objectives will require external conditions to be supportive as well,'' he added.
A lack of coordination between ministries is another big challenge for the new economic team as poor inter-ministry coordination has sent mixed messages to market participants, causing wild volatility.
``I don't think that there will be a major shift in government policies. But I expect stronger cooperation between ministries under the new economic team, which will make stimulus measures more effective,'' Citigroup economist Oh Suk-tae said.
``Since outgoing minister Kang was so unpopular with the public, the new appointment itself will help,'' he added.
In order to regain market confidence, Strategy and Finance Minister designate Yoon is expected to unveil more aggressive stimulus measures through more rate cuts and fiscal stimuli to send a strong message that he will place top priority on reviving the economy and stabilizing the financial market.
In an interview with local media late last year, Yoon said that the government should employ all possible measures in a preemptive way through tax cuts and fiscal expansion, noting that the nation's fiscal health is still strong.
In cooperation with Yoon, new FSC Chairman designate Chin is expected to speed up the restructuring of the shipbuilding and construction sector to clear away uncertainties associated with troubled companies.
``Time is the biggest issue. If we miss the right timing, it will incur huge costs. I hope that market participants, including market leaders, are aware of the importance of time,'' Chin told The Korea Times in a telephone interview.
Some critiques argue that the appointment of Yoon as the head of the new economic team will work against President Lee's efforts to restore market confidence, citing the selection as ``the return of another old boy.'' Yoon was the classmate of outgoing minister Kang at Seoul National University.
``Yoon is the person who is being held accountable for two economic crises, in 1997 and 2008. His appointment is the worst choice for President Lee,'' Kim Sang-jo, head of the NGO Solidarity for Economic Reform, said in a statement.
``In order to weather current economic turmoil, the country needs an economic team capable of restoring market confidence. However, Yoon is the last person who can achieve that goal,'' he added, calling for President Lee to call off the appointment.
However, many experts refused to make immediate comments on the new economic team, saying that what is more important are the new policies they will institute.
``Our concerns are more policy than personality. The replacements indicate a shift in policy or implementation of the Korean government,'' Kim of S&P said. ``However, our views can be formed only when such changes are announced or otherwise made known.''