Policymakers Should Take Actions to Rid Uncertainties
The South Korean economy faces the growing likelihood of plunging into another crisis following the 1997-98 financial meltdown due apparently to excessive credit growth and soaring property prices. It is regrettable that policymakers and market participants are not attention to warnings against such an economic crisis amid increasing uncertainties ahead of the presidential election set for December.
The latest alarm bell was rung by the U.N. Economic and Social Commission for Asia and the Pacific (UNESCAP) last week. The international body said in its Economic and Social Survey of Asia and the Pacific 2007 that not only South Korea but also Thailand, Indonesia and the Philippines, which suffered from the Asian-wide turmoil, have recently showed cracks in their economies that should be closely monitored. The countries face renewed vulnerability to sudden capital outflows that could cause a currency crisis.
The warning should not come as a surprise considering that some scholars and economists have already cautioned about the effects of a property bubble burst, which could lead to the breakdown of the banking sector due to excessive mortgage loans. Such a collapse could bring about an economic meltdown that is likely to be far more painful than the unprecedented financial crisis that forced Korea to go cap in hand for a rescue program arranged by the International Monetary Fund (IMF) almost 10 years ago.
UNESCAP said, ``Elsewhere, particularly in the Republic of Korea, geographical uncertainties linger and consumption and investment remain fragile.’’ It added that although South Korea grew faster, economic confidence wavered in 2006 as a result of political tensions with North Korea, higher oil prices and industrial disputes. It also pointed out that domestic demand, while growing at a reasonable pace, remains fragile.
The warning over the property bubble and a credit crisis might sound like a false alarm to South Koreans as they are accustomed to real estate speculation aided by excess liquidity and overly generous housing loans from banks. But it is not too late for policymakers to take bold measures to drastically reduce the superfluous liquidity with tight monetary controls to prevent the sudden burst of the bubble.
What's more worrisome is that the Korean economy is faced with mounting challenges arising from the rapidly emerging economies of China and India. Korea's manufacturing industries have become increasingly threatened by Chinese and Indian companies which roll out cheaper products. However, it is fortunate that Korea struck a landmark free trade agreement with the United States early this month as it is expected to bring benefits to the Korean economy, although some sectors, including fishing and agriculture, are expected to suffer setbacks.
It is high time that Korea Inc. should sharpen its international competitiveness not only to prevent the recurrence of a crisis but also to take a new leap forward to join the ranks of world's economic powers.