By Yoon Ja-young
Staff Reporter
A noted global economist said that the central bank should raise the key interest rate as soon as possible.
"There is risk here that central banks around the world, including the Bank of Korea, are going to be too late in implementing an exit strategy," Stephen Roach, chairman of Morgan Stanley Asia, said Thursday.
He said the central banks had pushed down the key rate to emergency levels. Korea has also maintained its key rate at a historically low 2 percent for 14 months.
Now, however, the emergency is over, according to Roach. "It's inappropriate to leave interest rates at the same emergency level," he said.
The chairman added that central banks are freezing key rates citing weak recovery. "I suggest rates should be raised somewhat even with a weak or fragile recovery," he stressed.
He highly evaluated Korea's diversification of export markets to developing countries. He pointed out that a lot of people believe depreciation of the Korean currency helped the economy show resilience, but said that he doesn't agree.
"I think it was not a decisive factor. In the years before, Korean exporters successfully shifted their markets from developed countries to developing economies," he said, explaining that it thus could survive the global crisis that hit developed economies the hardest.
He suggested that Korea should continue focusing on rapidly growing emerging markets. Investment in research and development and services is also crucial, he added.
Roach launched the Korean version of his book "The Next Asia: Opportunities and Challenges for a New Globalization," which peers into the future of the dynamic region.
He said he has been passionate about the Asian economy for the past 15 years.
"There is a misconception in the West that Asia in general, and China in particular, is a threat. I wanted to dispel that notion," he said.
He pointed out that the share of consumption in GDP continued to slide in Asian economies, while the share of exports continued to grow. Countries like Japan, China and Korea are heavily dependent on exports more than ever before.
This, however, is likely to change, he said, as the global crisis is going to have a lasting effect on external demand. "Export-led Asia is likely to be confronted by weaker demand. This is the challenge," he said, adding that Asian economies will have to modify their models.
He said especially China would be changing the growth model. Economic growth will have to be attained by private consumption. This, however, poses an enormous opportunity for Korea, which has China as its largest training partner, Roach said.
He suggested that Korean firms would especially have a competitive edge in sectors like alternative energy and green technology.