Korean Economic Recovery Depends on Businessmen, National Spirit
- By Dr. Park Jong-sun, Consul-General, Ministry of Foreign Affairs and Trade

Many economic experts in the country hold negative views on the nation's economy. Some say the economy is headed for stagflation, while some have gone as far as to say that it is in crisis. Still others say it is simply gravely ill.

The US has recorded a three percent GDP in the first half, and in the second quarter, its trade deficit amounted to $166.2 billion, signaling that its economic growth has slowed down.  In particular, consumer spending, which accounts for seventy percent of the US economy, grew only one percent in the second quarter, the lowest since the second quarter in 2001. China recorded a 9.1 percent growth last year, but its economic growth for this year is likely to decelerate due to restrictive measures undertaken to cool down the economy.

Japan's growth fell to 1.3 percent in the second quarter with consumer spending contracting to 1.3 percent in June. There are many signs indicating that Japan's  economic recovery will be sluggish due to weak corporate performances and the slowing of exports in the second half.

High oil prices, US interest rate increases, and a general world economic slowdown are likely to be burdensome to the Korean economy. Korea is the fourth largest importer of crude oil in the world and the country's heavy dependence on imported energy puts pressure on inflation, with the price of oil reaching $49.89 per barrel (WTI).

Our economy is struggling due to high inflation rates, which were recorded at 4.8 percent in August, and high oil prices. As of July, oil imports amounted to $15.4 billion, making the country the fourth largest oil importer in the world. Under these circumstances, the business community, as well as domestic households, demand the government take the lead in reviving the economy. But, the government alone cannot do the job. The role of the government is to ensure that businesses and households are able to go about their business as usual, and provide support so that facility investment in such high value-added industries as digital and knowledge industries can increase.

As such, the government ought to manage the economic crisis by focusing on the following points: First, it ought to strengthen diplomatic efforts to increase revenues from exports, foreign direct investment, and tourism. Exports in August amounted to $19.8 billion, down $2.4 billion from the previous month. Sluggish export products included such major items as semiconductor chips, mobile phones, automobiles, and computers. And even the price of LCDs fell due to intense competition.

Foreign direct investment amounted to $6.47 billion last year, down 28.9 percent from the preceding year, totaling $5.04 billion in the first half of this year. The economy is expected to worsen now that exports, which had been sustaining the economy in place of domestic spending, are slowing down.

Sluggish exports and foreign direct investment could shake the very roots of our economy, which relies (61.6 percent) on exports for growth. Thus, the five percent growth expected for this year may not be achievable. Therefore, the government should take exhaustive measures to strengthen the framework of the economy through pan-national diplomatic efforts. At the same time, due attention must be given to tourism, which is now being looked upon as a strategic 21st century industry by many countries in the world. The country's income from international tourism recorded a $2.9 billion deficit last year, and the deficit has amounted to $2.59 billion as of August of this year. Tourism revenue accounts for 10.7 percent of the world GDP, but it only amounts to four percent for Korea. The tourism industry must be cultivated as there is much room for development, linking with agricultural and handicraft products.

Second, world oil reserves amount to 1,147.7 billion barrels, which is enough to last for forty one years, but increases in oil demands from India and China, following their economic developments, could have the oil reserves of non-OPEC oil producing countries dried up within twenty years, boosting oil prices further. Every effort must be made to develop replacement energy sources and to reduce oil consumption.

Third, the government should implement economic policies focusing on reviving the mindset for investment and spending.

Resolving anti-business sentiment, the abolition of regulations, a flexible labor market, reforms in the investment climate, and stable prices are some of the policies that the government needs to address in order to stimulate consumer resolve in overcoming sluggish domestic spending, and to expand domestic investment through consistent and trustworthy economic measures. The current stagnancy in domestic expenditures is traceable to the economic structure; therefore, measures must be undertaken to expand facility investment rather than budgetary expansion and financial policies.

Businesses, too, must become more internationally competitive through investment in facilities, restructuring, and technology development and by trusting the government policies set forth. Domestic households, another major player in the economy, should adopt a more frugal lifestyle and save money, changing their way of thinking to become part of economic activities. The household delinquency index, at 127.9, stands at its highest level since the foreign exchange crisis. The household delinquency index must be lowered, and Koreans must endeavor to raise the household savings index, currently at its lowest since 1982, at 21.7 percent. One should never forget that this forest of stagnancy is due to bulging household debts, now standing at 458.2 trillion won.

Businesses, households, and the government, the three major economic players, must work together, trusting one another, to revive the economy. Businesses should take advantage of President Roh Moo-hyun's summit diplomacy, which focuses on economy and trade to Eurasia, Asia, and South America and set up and implement strategic plans accordingly, exploring export markets, and developing resources and energy. They must also prepare for an economically emerging China with a 1.3 billion population. Two particular events, the 2008 Beijing Olympics, and the 2010 Shanghai Exposition are markets that could be tapped by creating a neighborly business-friendly environment. Global businesses could be attracted for investment in the country, in addition to reaching out to world markets to sell domestic products, so that the country's slumping economy can be revitalized.

Voices of blame and remorse are omnipresent, with the economy skidding downhill faster than it did during the financial crisis in 1997. Businesses and Koreans in general must rise from their slumber with the understanding that as major economic players, a major part of the blame rests with us. To rebuild our confidence we need to remind ourselves that that we successfully coped with a financial crisis once before, and so we can do it again.  By overcoming the various economic difficulties outlined above, the economy can and will be rejuvenated.   nw