Shift to Stability

It's Time to Come Up With New Economic Paradigm

Spiking oil prices and higher inflationary pressure have forced the Lee Myung-bak administration to lower its 2008 economic growth target to 4.7 percent from its earlier figure of 6 percent. The downward revision came somewhat late, considering the downside risks have already become conspicuous. Lee's economic team is under criticism for being too slow to recognize all the gloomy indicators and change its policy to meet mounting challenges at home and abroad.

Now no one is trying to hold Lee responsible for his failure to make good on his ``747" campaign pledge to raise the annual growth rate to 7 percent, hike per capita national income to $40,000 and transform the county into the world's seventh-largest economy. Of course, more than a few people are disappointed with Lee's unrealistic economic pledges. Right after his inauguration, the government set the growth target at 6 percent, down 1 percentage point from Lee's promise.

Lee and his policymakers have enough excuses to avoid any blame for sharply trimming the growth projection although they have to admit that the President painted too rosy a picture during the campaign trail last year. The excuses are skyrocketing prices of crude oil, other natural resources and grain. Skepticism is growing that the nation may achieve the revised target of 4.7 percent growth this year, because of rapidly deteriorating economic indicators.

To the dismay of people aspiring for economic revival, the Organization for Economic Cooperation and Development (OECD) slashed its growth outlook for South Korea to 4.3 percent last month from an earlier 5.2 percent. The International Monetary Fund (IMF) also cut its projection figure from 4.2 percent to 4.1 percent. The two international institutions could make an additional cut as the world economy is also faced with higher downward risks.

On Tuesday, the Bank of Korea (BOK) predicted the economy would grow 4.6 percent this year, down from last year's 5 percent. It forecast consumer prices surge by 4.8 percent, escalating concerns about stagflation. According to the central bank, the nation will suffer from a current account deficit of $9 billion. The projections are based on an assumption that the average oil prices stand at $115 per barrel throughout the year.

What matters is that the oil prices have already surpassed $140 per barrel. And the prices now threaten to test the $150 level, heightening a possibility of a third global oil shock. South Korea, one of the world's top oil-consuming countries, is taking the brunt of higher inflationary pressure. The BOK acknowledged the economic slowdown might be accelerated as a result of soaring inflation.

In this situation, the Lee administration should come up with a new economic paradigm designed to keep runaway inflation in check and maintain growth potential. It will have to refrain from taking stopgap measures for economic stimulus. In this regard, we welcome a government effort to shift its focus from a growth-oriented policy to price stability. Without bringing inflationary pressure under control, the nation cannot attain sustainable economic growth.

President Lee ought to exercise his leadership to weed out any unstable factors such as the ongoing public protest against U.S. beef imports, a political deadlock and a threat to the rule of law. He must keep in mind that the country cannot succeed in ushering in economic revival without tackling the social and political instability.