Getting Economy Back on Track

FKI Chmn. Cho calls for massive investment by government, private businesses to overcome economic crisis

Chairman S.R. Cho of the Federation of Korean Industries (FKI), one of the most influential business organizations in the country, said the current crisis is global and unlike the oil shock and foreign exchange crisis, it is a financial crisis, which requires stability in the financial market with enough available liquidity to cool it. Chairman Cho, who also heads the Hyosung Group, said the government has to unleash government funds to spur economic growth and create jobs. The government funds may seem like money spent for nothing, but actually they are investments, he added.
During a conversation with Professor Cho Dong-song of Seoul National University on Dec. 31 at his office in Yeouido, Seoul, he said that like the government of the 5th Republic under the leadership of Pres. Chun Doo-hwan, the government should expand its investment in industrial facilities and social overhead capital projects, in addition to the projects on the four large rivers in the country, sooner rather than later. The governments of foreign countries have already been doing their jobs to boost their slumping economies and create jobs through massive investments.
Some governments issued guarantees against private companies' credit and the U.S. government has extended $16 billion in loans to U.S. automakers in financial trouble.
The FKI's Cho believes interest rates should be lowered; In some countries, funds can be borrowed at rates of less than 1 percent per year, while in Korea, borrowers have to pay 3 to 4 percent on loans as banks try to boost their BIS rates. "The cost of money is too high for any business in Korea," Cho said.
On this year's economic prospects, the FKI chairman forecast that the first quarter would be the toughest period for the economy with the rate of growth expected to be in the minus column. He said the slump would continue into next year, although deflation is the most feared factor with prices falling below production costs.
Chairman Cho said the oil price skid has continued lately, despite cuts in production due to a lack of demand. Facility investments are hard to make due to the fall in consumption.
The FKI chairman, however, said facility investments should be made continuously regardless of the economic downturn. According to a market survey by the FKI, sales are likely to contract by 10 percent this year and businesses are hard pressed to borrow money; they have to boost interest rates on bonds from 15 to 20 percent per year to extend their maturities. These rates are the same as what they charge on loans for firms about to go broke. He said the Korean economy has been dependent on exports for growth and with the economies of North America and Europe hit hard with the slump, it will be hard to export Korean products. He said exporters have to make themselves competitive in order to boost productivity through cooperation with labor unions and cost-cutting measures. High-quality products should be able to sell at higher prices and high wages should be lowered to create more jobs, he said. The chairman also said talks with unions could open a way for retaining the current number of employees, but it requires some flexibility with the wage peak system. Losing a competitive edge for the sake of welfare for labor union members could result in firms finding themselves in the same dire situation as General Motors, he warned.
Chairman Cho said exporters should explore markets in South and Central America and Eastern Europe. "Confusion and break-up persist due to inertia by politicians not passing laws to expand government investments and other measures to stem the economic slowdown." He criticized legislators for not doing their jobs to take care of the people, although they receive their paychecks regularly. The free trade agreement with the United States should also be approved by the parliament as early as possible, in light of the immediate benefits it will bring.
The FKI chairman said the business community is doing its best to expand investments this year. "For one, Hyundai Steel is on track to build the country's second blast-furnace steel mill in Dangjin. And for companies with sound financial structures, this year could be the most opportune year for investment. So far, we have been copying the technologies and products of other countries and it's about time we invent our own, as we cannot beat China as far as copying others is concerned. We have to invent our own technologies and produce products with them," he said. nw

Chairman S.R. Cho of the Federation of Korean Industries.