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(EDITORIAL from Korea Times on June 6)

All News 09:02 June 06, 2019

Wakeup call
:Current account turns into red in seven years

The country suffered a current account deficit in April for the first time in seven years. The shortfall can be attributed to a sizable drop in exports. This is certainly a cause for concern for Korea's export-driven economy.

On Wednesday, the Bank of Korea (BOK) said the monthly current account fell into the red by hitting $660 million, a setback compared with the surplus of $4.82 billion in March. It also ended 84 months of surpluses.

The red figure is not surprising given the prolonged economic slump. First of all, exports, which have been on a five-month downward spiral, are held accountable for the deficit. Overseas shipments of goods fell 6.2 percent year-on-year to $48.3 billion in April. This was due mainly to tumbling sales of semiconductors amid the global economic downturn.

Against this backdrop, the country's trade surplus declined to $5.67 billion from $8.47 billion in March. This was a far cry from a $9.62 billion surplus recorded in April last year. The suml may decrease further if the U.S.-China trade war escalates down the road.

The central bank and the Ministry of Economy and Finance are trying to downplay the serious nature of the current account swinging back to the red. They argued that the monthly deficit is a temporary phenomenon caused by a seasonal increase in dividend payments overseas. The payments, in fact, jumped to $6.78 billion in April, bringing about a $4.99 billion shortfall in the investment income balance.

The BOK and the ministry are optimistic that the current account could return to the black next month. They predict the country will enjoy an annual surplus of more than $60 billion this year. They imply there is no problem with the current account, a broad measure of the nation's global trade in goods and services as well as net earnings on cross-border investments.

Yet policymakers should not go too easy on this matter. The deficit, though temporary as they pointed out, should serve as a wakeup call for the Korean economy. This is why the economic team of President Moon Jae-in should take timely and proper measures to speed up economic recovery.

The main pillars of the economy ― production, consumption and investment ― have been in the doldrums because of sluggish domestic demand and plunging exports. Moon's much-touted "income-led" growth policy has so far failed to make any progress. Steep hikes in the minimum wage and a shortened 52-hour workweek have weighed down heavily on businesses, particularly smaller ones and the self-employed. As a result, job opportunities have become scarcer.

President Moon and his policymakers should no longer engage in wishful thinking that the economy will get better in the second half or early next year. Instead, they need to admit their policy blunders, change their misguided direction and work out new policies that can promote deregulation, innovation and entrepreneurship. Otherwise, they cannot make people better off.

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