By Kim Tong-hyung
With the controversial free trade pact between Korea and the United States finally set to take effect, government authorities are scrambling to justify the deal and massage public egos in a pre-election year.
The bureaucratic speechifying was taken to new heights Monday when Strategy and Finance Minister Bahk Jae-wan claimed that the free trade agreement (FTA) would provide help to the country in what has been its losing fight against inflation.
The rise in consumer prices has been above the government’s 4 percent target for nine consecutive months before managing to come in at 3.9 percent in October. Policymakers have been rendered powerless to halt the damage to savings and spending power as the heightened uncertainty surrounding eurozone economies eliminated the option of clamping down on money supply.
The higher prices have been coupled with subdued economic activity, leading to an acute squeeze in living standards for households that have already been sinking under a sea of debt.
Consumers are clearly in the mood for painkillers, and Bahk suggests that the Korea-U.S. FTA is precisely what the doctor had in mind.
``The ratification of the Korea-U.S. FTA will not only improve economic growth, employment and trade figures, but will also benefit consumers by lowering tariffs on pork bellies, oranges and cosmetic products, which will also contribute to restoring price stability,’’ Bahk said in a meeting with economic policymakers over anti-inflation strategies.
``It’s critical that consumers are sufficiently informed about the effect of the lowered tariffs on major consumption items and other FTA-related influences. We need further discussions on reviewing retail distribution channels and fix the discovered problems to let the FTA work as prescribed.’’
Bahk admitted that the price pressures will persist in the foreseeable future, citing the stubbornly high levels of the public’s inflation expectations and turbulence in the world economy. However, inflation should be tamed once food and fuel prices come down, which Bahk predicted would be sometime in the second-half of 2012.
``Inflation is felt even worse by consumers than statistics indicate, due to the high fuel costs and the rise in processed food and services prices,’’ he said.
``The precariousness of international financial markets, which may increase the volatility in import prices, and the persistent inflationary pressures in the services industry are clearly risk factors.’’
The government had forecasted consumer price inflation to finish the year at 4 percent, but it’s now been all but assured that the country will miss the target.
Observers are worried that the country is set for an economic crunch as family finances collapse under the burden of record debts, rising interest rates and living costs.
Households here have already paid more than 56 trillion won (about $49 billion) in interest on debts this year alone, the first time annual numbers breached the dreaded 50 trillion won mark, the Bank of Korea (BOK) said.
The increasing burden on debt repayment has been coupled with soaring inflation, which may bubble over again soon due to rising bills for utilities, transportation and other necessities, predicting the most dramatic squeeze on family finances since the last recession.
Companies aren’t exactly having a blast either. According to a separate report by the central bank, Korean manufacturers' business confidence for December inched up, but remained close to an over 2-year low amid murky global outlooks. The index of manufacturers’ outlook on business conditions reached 83 for December, up from 82 for November. The index measures manufacturers' expectations for the coming month.