Focus

Monday, June 2, 2008

Is Anybody in Control of the Economy?

Korea posted a US$1.56 billion current account deficit in April, a fifth consecutive month in the red since December of last year (US$1=W1,030). This is the first time this has happened since 1997, when a current account deficit depleted the foreign exchange reserves and pushed Korea to the brink of bankruptcy. A major reason for the deficit is the surge in crude oil prices during the first four months of this year, which caused oil import costs to rise by $10 billion compared to the same period a year ago.

Rises in crude and raw materials costs compounded by the weakening won have driven the inflation rate to the 4 percent range. Soaring oil prices have prompted cargo truck drivers to park their vehicles, and fishermen are keeping their boats ashore. Reeling from the impact of high prices, consumers have cut back on spending leaving restaurants and stores empty. Over 3,600 restaurants in Seoul alone have shut down so far this year.

The index of present economic conditions has painted a bleak picture for the third straight month, while the index pointing to future economic conditions six to seven months down the road has also been negative for a fifth consecutive month. The three major economic indices monitoring consumer prices, economic growth and current account balance are all showing warning signs. High-flying global oil prices and the economic slowdown resulting from the U.S. subprime mortgage crisis are beyond Korea's control, so there are limitations to what Seoul can do.

Yet the Korean government has not given up on its goal of achieving 6 percent economic growth this year. Indeed, it is fixated on its election pledge of 7 percent growth. That's why we are seeing the adverse effects of rising consumer prices as the government stuck to a weak won against the U.S. dollar in order to boost exports.

Of greater concern is the fact that there is no one to regulate and rectify these problems. A sign of this situation can be seen in the chief of the presidential office criticizing as "inadequate" a government plan to deal with soaring oil prices that came out of a prime ministerial meeting. At a meeting of presidential chief secretaries, participants are said to have voiced concerns that the chief economic secretary did not appear to be in control of the situation. There was also talk of disagreements between the head of the presidential office and the chairman of the National Competitiveness Reinforcement Committee over who controls deregulation and other mid-to-long-term economic policies. Cheong Wa Dae and the government are out of sync, while even the groups within the presidential office are not operating in tandem. In other words, nobody is in control of economic policy, which is why this administration appears so shaky in its handling of the economy.

(taken from: here)

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