The ongoing fall of foreign reserves is so rapid and deep as to remind people of the 1997-98 currency crisis.
As things stand now, chances are slim for the recurrence of the financial crisis of a decade ago, but governments cannot be too much cautious in economic management. Seoul in particular needs to be twice as shy, as it was burnt so badly not so long ago.
Korea's foreign exchange reserves shrank by $10.6 billion in July, marking the biggest monthly drop since the Bank of Korea started to compile data, as the government went all out to tame inflation by selling off a massive amount of dollars on the currency market. Financial authorities appear confident of keeping the market under control, pointing to sufficient reserves of $260 billion, the sixth largest in the world. Things have changed much from 10 years ago, they say.
They may be right. Not only have the nation's currency reserves swelled but also its industrial sector has strengthened and the financial system is solid.
Still, there is still some cause for concern. Korea will likely turn into a net borrower as well as register a current-account deficit for the first time in nearly a decade. Added to this is the fact that considerable portion of foreign debts are short-term liabilities and foreign investors are engaged in a ``sell-Korea'' trend on the domestic markets, then many ordinary people can hardly shake off the nightmarish memory of the worst financial pinch that drove the country to the verge of bankruptcy.
Among many similarities and dissimilarities between now and then, two things stand out at home and abroad, respectively.
Abroad, the global economy is now reeling under the unprecedented spikes in raw material prices, including oil. Moreover, the epicenter of the economic turmoil this time around is not the developing countries but industrial nations, particularly the United States. It's as if the fire station is on fire, so countries will have only themselves to resort to in a crisis of global scale.
At home, government officials have changed painfully little from a decade ago. Like then, the officials stress the health of the nation's economic fundamentals, while trying to win over the market and moving from one extreme to another in foreign exchange policies.
Private economists agree the government's market intervention should also be made according to the first economic principle of attaining maximum effects with minimum costs, but it is doubtful whether Seoul's recent operations have followed this.
President Lee Myung-bak won the election eight months ago, posing himself as an economic president. In less than three months of taking office, however, he began to talk about an economic ``crisis," citing adverse external conditions, spreading jitters among the already troubled working-class.
It may sound paradoxical, but economically difficult times like this should be an opportunity for an economic president to show his ability and prove the voters' selection was right.
Lee should present a new vision to channel idle money to industrial investment and bring in more foreign capital. Perhaps the first thing he should do to this end is to change his economic team to one led by a more prudent and capable chief, who can win the trust of the people and the market.