U.S. Fed Chairman Ben Bernanke’s “exit schedule” from quantitative easing shook global financial markets for the second consecutive day Friday. Feeling its impact far more keenly than others are small, open economies, such as Korea reeling under “triple falls” of currency, stocks and bonds.
The top U.S. monetary policymaker’s move came at an especially bad moment for Korea because its economy has begun to show a feeble recovery despite the adverse effect of “Abenomics” and the weak Japanese yen.
But there is a silver lining in every dark cloud.
If Korea tides over the short-term financial turmoil, the U.S. recovery of economic confidence will be a boon for its export-dependent economy in the long run. The nation is even better prepared for coping with financial jitters, armed with deeper foreign currency reserves, better devices to control fund flows, and tighter cooperation with foreign partners.
In a worst-case scenario, some Asian countries might fall into regional currency crisis, similar to 1997-98, but Korea is not one of them, analysts say.
We also hope so, but are not confident that Korea’s economy is entirely immune to the nightmarish situations of 15 years ago. This is less because of external factors than because of domestic reasons, including the barely changed behavioral patterns of the economy’s main players, namely family-controlled conglomerates on the one side, and politicians and bureaucrats held captive to these chaebol, on the other.
In 1995, for instance, most Korean businesses and small- and medium-sized ones in particular were in a critical condition except for a handful of large companies, including computer chip makers, like Samsung Electronics. Even then, the chaebol threatened to make massive factory relocations abroad citing six reasons, including regulations, while refusing to make crucial reforms in their finance and governance structure. The “IMF crisis” broke out two years later.
Currently, the Federation of Korean Industries (FKI), a chaebol lobby, is reiterating the “corporate exodus” blackmailing, adding one more reason to a total of seven ― popular antipathy to large businesses. Their aim: to block the Park Geun-hye administration’s efforts at “economic democratization” to rectify irregular financial dealings among chaebol subsidiaries and improve fair competition. “The government needs to slow down the pace of anti-business legislation for the sake of economic growth,” said the FKI.
Even more pitiable are economic bureaucrats. Deputy Prime Minister and Minister of Strategy and Finance Hyun Oh-seok recently told the head of the antitrust watchdog, the so-called economic police, and tax chiefs to be careful in making policies that can discourage entrepreneurial spirits. That sounds nice but is de facto retreat from reforming chaebol, which President Park advocated so eagerly during election campaigns, in the face of “harsh economic reality.” But what Park and her economic aides must remember is that for chaebol, there have never been good times for correcting their wayward, sprawling business practices.
Unless Park is able to break these collusive as well as competitive relationship between tycoons and bureaucrats, the nation’s economy can relapse into crisis anytime, from outside or inside or probably both. Ostensibly, chaebol attack bureaucrats for regulations and the latter accuse big businesses of greed, but that doesn’t change their nearly subconscious agreement to pursue large business-led, export-(over) dependent economy.
Deregulations and tax cuts have failed to lead to growth but largely ended up deepening income polarization, snowballing household debt and creating property bubbles. Most of the sound-minded economists, local and foreign, have long advised Seoul to take better care of small businesses, as chaebol’s problem is not too little power but too much of it.
Taming chaebol without hurting economy is never easy, but not impossible. What matters is a President has the will ― and courage.