Gov't All Out to Curb
Economic Crisis

Will freeze public utility, transportation fees: won gains against greenback

With the goal of overcoming the lingering economic crisis, President Lee Myung-bak and his staffers have been racking brains. They believe the current problem will be a litmus test for the government. They need to find a solution to the economic difficulties as soon as possible, mindful of the parliamentary elections on April 9.
The government plans to freeze public utility and transportation fees to rein in surging consumer prices in the wake of the growing costs of crude oil and other raw materials to help improve the livelihoods of the low-income bracket.
It is also considering extending low-interest housing loans to low-wage earners amid rising housing costs, while lifting or lowering tariffs levied on 82 major import items, including grain and oil products.
The government announced these and other anti-inflation measures on March 21 after an emergency meeting of economy-related ministers, presided over by President Lee at Cheong Wa Dae. Strategy and Finance Minister Kang Man-soo, Financial Services Commission Chairman Jun Kwang-woo and senior presidential secretary for economic policy Kim Choong-soo were among the participants.
The gathering was the second of its kind this year. President Lee held a Cabinet meeting early this month and instructed ministers to take all possible measures to tame inflation. At the time, the government decided to lower taxes on oil products by 10 percent, while scrapping excise taxes levied on liquefied petroleum gas used by taxis and slashing commuting costs by 50 percent.
Cheong Wa Dae spokesman Lee Dong-kwan said the government decided to convene the emergency meeting to map out appropriate measures aimed at countering high costs of goods and services because of surging oil and other international raw materials prices and the rapid depreciation of the local currency.
"The government will freeze all public services charges, including tap water and public transportation fees, by making public utility companies operate more efficiently and reduce costs.
If necessary, we will provide financial help to provincial governments that are negatively affected by such measures,"he said.
To help stabilize prices of nonferrous metals, the government plans to increase the weekly release of aluminum, copper, nickel and other metals to 4,800 tons. Currently, it supplies 3,500 tons of such metals to the market every week.
The spokesman said the government has selected a tentative list of 50 major items that it will closely monitor to ease the inflationary burden on the general public. "The items are most frequently consumed daily necessities by the low-income bracket. We will finalize and announce the list soon after more inter-ministerial meetings and public hearings,"spokesman Lee said.
The government also plans to overhaul the distributions channels of agricultural and livestock products to lower prices, benefiting both producers and consumers.
In a sign of market stabilization, the local currency gained against the dollar on March 18 after the government hinted at intervening in the foreign exchange market if the won continued to lose ground beyond its current level.
The won was up against the greenback for the first time in 13 trading sessions on March 17, closing at 1,014 won to the dollar, up 15.2 won from a day earlier. The benchmark KOSPI also closed higher at 1,588.75, up 14.31 points.
On March 17, the won shed 31.9 won to close at 1,029.2 won per dollar, its weakest level since Dec. 12, 2005, when it traded at 1,033.7 won. The currency also fell to its weakest point in almost 3 ½ years against the Japanese yen, closing at 1,061.58 won per 100 yen.
Strategy and Finance Minister Kang, convened an emergency meeting at the presidential office Tuesday morning to signal that Seoul will no longer tolerate the downfall of the local currency. Bank of Korea Governor Lee Seung-tae and Financial Services Commission Chairman Jun Kwang-woo were also present at the meeting.
It is unclear whether the currency gained due to the intended government intervention.
A Cheong Wa Dae official said the government has decided to activate a task force to monitor the currency market, stressing that it will intervene if the market continues to remain volatile.
Earlier in the day, Shin Je-yoon, deputy finance minister for international affairs at the Ministry of Strategy and Finance, expressed concern about the pace of the won't depreciation and its repercussions on the domestic financial market.
"We are gravely concerned about the market instability. The government must team up with the central bank to closely monitor the currency market,"he said. Shin also said the government will take appropriate measures if the market continues to remain unstable.
The local currency has been weakening against the dollar and the yen as foreign investors dump local stocks and convert won into dollars before taking money out of the country amid the global financial market turmoil.
The country's worsening current account balance has contributed to the won't weakness, causing a supply shortage of dollars on the local currency market.
The weaker won is a bonanza for local exporters as their products become cheaper in dollars on overseas markets. But the weak currency has put additional upward pressure on already high consumer prices here, as the country has to pay more to import crude oil and other raw materials.
Many analysts are still puzzled over the depreciation of the currency against the greenback at a time when the dollar has hit all-time lows against major currencies, including the yen and the euro.
There has been controversy over the methods the President Lee Myung-bak administration is adopting to cope with the current economic difficulties. Lee used the word "crisis"19 times during his half-hour speech at a workshop with economic officials on March 16. He then stressed the need for political stability to tide over looming troubles.
Lee's political opponents wasted no time in striking back, saying, "The president is amplifying economic problems to gain a better position in next month's parliamentary polls."Slump-stricken voters, conservative or liberal, would rather hope the opposition is right. Unfortunately, the truth could be to the contrary.
The situation can hardly be worse for the new government, whose top administrative slogan is "economic revival."The global economy is on a downward spiral, raw material prices, led by oil and food, are skyrocketing and financial stability is in grave danger with Wall Street at its epicenter.
The free fall of the Korean won, though recently checked, offers little comfort for local businesses, which are seeing any gains in price competitiveness wiped out by cost increases. On a national level, currency depreciation benefits large exporters but hurts importers and consumers, increasing income polarization, which is why the government should not sit idle.
President Lee's emphasis on stabilizing retail prices is right, but his action program is not. He told the Ministry of Knowledge Economy (the former commerce and industry ministry) to focus on about 50 key consumer items, but combating inflation is a job for the central bank or finance ministry, and the items subject for special management have long been fixed to include a wider range of products.
In sharp contrast to the seemingly anxious president, his economic aides can hardly appear more relaxed. The Ministry of Strategy and Finance has done nothing to stem the plunge of the local currency, raising suspicion that Seoul is using the won't fall to further bolster foreign shipments, rectify its current-account deficit and attain the 6-percent growth target for this year. Some recent remarks by Minister Kang indicate tacit approval of the currency's depreciation.
At stake is not economic expansion but how even its fruits can be distributed. The annual 4 percent to 5 percent growth under the two previous administrations was never small, as it could double national income in 14 years. If the present government, which refers to its two predecessors as producing a "lost decade,"strains too much to hit 6-percent growth, it will leave huge adverse effects ― if not throwing the nation back to a pre-currency crisis situation caused by a similar economic team.
Most dangerous to people's eyes is the seeming disharmony, or lack of teamwork, or even Lee's poor leadership in dealing with the crisis, as shown by different courses of action among different agencies.
President Lee recently made good on another proposal for slashing administrative expenses by 10 percent and using it as a pump-priming resource. He should follow up by calling on businesses to make essential investments and tell people to be wise consumers ― buying goods but reducing material waste.
All this, however, will be able to win popular support only when the entire administration, from the president to the lowest-level official, is operating from the same playbook. nw

Accompanied by Strategy and Finance Minister Kang Man-soo, President Lee Myung-bak heads for a briefing session on the business of the Strategy and Finance Ministry on March 10.

President Lee exchanges greetings with foreigners on hand at a session on the improvement of Korea's competitive edge on March 13.

President Lee presides over an economic ministers'meeting designed to curb prices on March 20.