Dealing With Economic Crisis

By Lee Sun-ho

Watching the provisional estimates of global gross domestic product (GDP) growth trends by major research institutes, we seem to be passing through one of worst recessions in history. The sluggish activities in corporate and financial sectors are aggravating each other in a vicious cycle. Worse still, the bottom has yet to come.

Of course, Korea is not suffering alone this time, as the whole world, ranging from most industrial countries, including the epicenter of the United States, to major emerging economies are struggling too. The difference is that this country is experiencing a severe business setback again after little more than a decade of interval. It's another make-or-break moment, but overall confidence here is frustratingly low.

As part of efforts to fend off a further economic slowdown, four possible policy measures and social and cultural solutions, including the ``prosumer'' (producer consumer) campaigns and new risk/uncertainty management schemes can be considered, although the viability of each will have to undergo close examination.

First of all, the government should introduce bolder economic reforms and open the domestic markets wider to foreign competition. On the macroeconomic front, it needs to maintain stable conditions to help facilitate industrial restructuring by effectively controlling major indexes of production, consumption, investment, exports and imports, inflation and unemployment rates.

On the microeconomic front, it should create an environment for knowledge-intensive and dynamic economic activities by encouraging sound corporate governance, while maintaining adequate foreign exchange holdings to prepare for unexpected currency turmoil.

Secondly, the government's economic team needs to have a steady long-term vision, while, at the same time, be ready to make flexible short-term adjustment, with proper a mix of monetary, fiscal and foreign exchange policies. Monetary authorities have cut interest rates as part of their economic stimulus package. No less important is the flexible injection of foreign currency liquidity as well as greater flexibility in labor markets to quickly capitalize on a possible turnaround in the global economy.

Of course, any stimulus plan needs to come from a long, comprehensive perspective rather than ending up a short-term patchwork of makeshift responses, while placing priority on the consistency and harmony between the private and public sectors. They need to distinguish overall long-term planning from recurring short-term measures in ways to make one compliment each other in their implementation process. Now that the government has fully opened both long-term and short-term capital markets, making long-term investments here by raising short-term funds abroad, including the hot money, must be checked in advance.

Thirdly, any long-term economic restructuring ought to include not only that of hardware reform but also take software and even ``wetware'' reforms in keeping with global practices and standards.

The Korean economy has benefited significantly from its hardware reforms of corporate and financial restructuring. The restructuring so far, however, has been more or less limited to cleaning up failed industrial and financial companies, re-capitalizing them and resolving their pressing problems.

However, what lies ahead is a software reform akin to building an entirely new operating system for all economic players in corporate management and practices befitting the hardware reform.

A ``wetware'' reform also needs to be added to the ability and caliber of the workforce so as to let businesses be prepared for changing production methods anywhere. This kind of reform is crucial if Korea continues to compete head-on with global economic powers. A culture of greater economic freedom accompanied by enhanced accountability and transparency has to take root in corporate governance through either an outside director system, protracted court receivership or a combination of both, as has been implemented in Korea until now.

Lastly, I suggest the nation utilizes both analog and digital prescriptions, as well as easily available information for the economy to get out of the slumping cycle and attain sustainable growth. In areas where an instant impression is required, analog meters often give information quickly. When accuracy and efficiency are required, however, digital displays are preferred thanks to the capabilities of digital electronic devices.

Reading analog knowledge pertaining to know-how accumulated in human brains requires both time and skill, whereas writing down the value on a digital display is merely a case of copying down the numerical knowledge. In cases where both accuracy and quick reckoning are required, dual displays are often used.

Knowledge-intensive or high value-added endeavors based on integrated combination of the two methods are possible for the benefit of global ``prosumers'' through market opening.

Economic stimulus packages have to be coordinated internationally in order to reduce the already serious global imbalances. A decade ago, Korea was the first among crisis-hit emerging nations given an improved outlook in its investment climate for foreign investors by the three major credit rating providers, namely, S&P, Moody's and Fitch.

It is crucial to have a new mindset and resolution for change, starting from the corporate and financial sectors by keeping up with the ever-changing global economic landscape and adapting to it in the most effective fashion.

By effectively putting these measures into practice, the nation will be able to escape from short, repeated boom-bust cycles and put its economy back on track in the not-too-distant future. If so, the ongoing difficulties may not necessarily be a dark, hopeless tunnel, but a conduit to a brighter economic future.

The writer is an outside director of Kunwha Pharmaceutical Co., Ltd., in Seoul. He can be reached at kexim2@unitel.co.kr.