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  • 승인 2005.05.01 12:01
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3-Digit Exchange Rate More Proactive Economic Management Needed The dollar first slide below 1,000 Korean won in 89 months surprised few here. But that does not lessen the symbolic and realistic effect that the won-dollar parity rate returning to pre-financial crisis levels has on the economy. It is hard to know how low and long the greenback fall might go, but Korea seems to have finally come back to the era of a three-figure exchange rates and a new policy approach. Exports will be hit hardest. Up to 87 percent of Korean exporters cannot make a profit if the U.S. currency stays at the current level. A 10-percent appreciation in the Korean monetary unit also pulls down economic growth by 0.5 percentage point. The nation is unlikely to attain even the revised growth target of 4 percent for 2005, unless foreign shipments manage to prop up the economy and keep the nascent recovery alive, at least until domestic demand revives. Seoul should not and cannot artificially bolster the dollar for long. Doing so runs the risk of overexposure to speculative hedge funds, which can easily overwhelm its exchange reserves. Now, the government needs to intervene in the market to protect exporters, smaller ones in particular, from wild currency fluctuations and earn some time for them to adjust. In the long run, however, businesses have to enhance their competitiveness through technological and managerial renovation to survive a strong won. The long-term, fundamental approach is inevitable, given the background of the won latest surge. Korea seems to be getting a by-blow in the currency war between the United States and China. The U.S. trade and budget deficits are threatening America economic health, driving Washington to push for the revaluation of foreign currencies, especially the Chinese yuan, which is pegged to dollar. Beijing currency policy is selfish if not downright manipulative, but the U.S. seems to seek excuses abroad for troubles at home. As is well known, the U.S. twin deficits are the results of Americans spending beyond their means, both as consumers and warriors. As the Bush administration is unlikely to change its tax cuts for the wealthy and the spending on the war in Iraq, other countries need to seek self-help measures. For instance, Seoul cannot diversify its currency reserves now due to risks of losses from dollar-based investments. But it could consider changing the Treasury bonds into corporate debentures or seeking a joint stance with China and Japan. Along with high oil prices and accelerating security tensions, this is no time for economic complacency, as President Roh Moo-hyun appears to be. To keep the economy on the right track, the government should be able to come up with a flexible mix of interest, fiscal and currency policies in cautious but proactive ways. Is This Recovery Real Rival Political Camps Should Unite For Economy Various business indexes and economic signals are clashing with one another to cause serious confusion even within the government these days. President Roh Moo-hyun said the Korean economy has been ompletely recovered in all aspects _ inflation, foreign exchange, growth and unemployment rates. The Korea Development Institute, a government think tank, said the economy has yet to enter into a full recovery cycle. Was the president just expressing his economic wishes instead of reality as he did in diplomacy If anything, most people are likely to say the KDI is right. Besides the time lag, there always are some gaps between psychological signals, such as consumer confidence index, and actual recovery. Statistics show the heavy budgetary frontloading in the first-quarter period has created jobs only one-fourth the level of a year ago. Also, the sharp increase in the prices of daily commodities, including foodstuffs and public charges, make the officially announced inflation rate of 3 percent hard to believe. More ominous is news from abroad. Various reports indicate the global economy is undergoing a oft patch _ a temporary worldwide slump _ hit by high oil prices, the U.S. twin deficits, slower Chinese growth and weak domestic demands in the European Union and Japan. This is an especially serious development for Korea, which relies on exports for almost 80 percent of economic expansion. The Korean economy could even fall back to a deeper recession unless the domestic demand revives before the exports crash. As President Roh stresses, the economy can be psychological. Groundless pessimism could be as harmful as unwarranted optimism. If forced to choose, however, the adverse effects of overconfidence should be more dangerous. One has to go back to no further than the 1997-98 financial crisis, when the entire nation, blinded by the semiconductor boom, failed to recognize the looming catastrophe. Today situations are far different from then but the need to prepare for even the remotest possibility can hardly be overemphasized. Now that the president has declared the economy full recovery, few officials could say different things for fear of appearing disloyal or inconsistent. His economic team can do either too much to make the presidential remarks real or too little to make it appear as a fait accompli. Both can seriously distort the economy, not only now but also in the foreseeable future. The opposition Grand National Party, while citing few plausible reasons, sees the economy is in a serious crisis, requiring extraordinary measures for its revival. One can see the cup either half-full or half-empty, and the economy is one area subject for widely different analyses. But it is also too important an area to be left to political interests. Rival political camps should stop partisan arguments about the state of the economy but join forces to attain a real recovery.

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