Stabilizing the economy is the first priority
The tightening roadmap by the U.S. Federal Reserve after a recent 50-basis-point increase in the benchmark rate has rattled the global financial markets. In Korea on Monday, the main Kospi fell below the 2,600 threshold to the lowest closing in 18 months.
The overnight crash of U.S. stock markets weighed over the Korean market. The Kospi has been skidding for six consecutive sessions, losing nearly 100 points. Individuals who had sought loans to invest in stocks have been fretful of the stock losses and rising interest rates.
The economy is turning from bad to worse. The fast gains in inflation rate raise a scare for stagflation. Amid steep rises in consumer prices, interest rates, and the U.S. dollar, Korea faced twin deficits in its fiscal and trade balance.
That's not all. After the global supply chain bottleneck worsened from Russia's invasion of Ukraine and China's lockdowns over the alarming Covid-19 spread, hopes have been dashed for this year's growth target of 3.0 percent. The International Monetary Fund (IMF) downgraded its estimate for Korea's economic growth to 2.5 percent. But the new government is restricted in bolstering spending to stimulate the economy because fiscal integrity was irrevocably damaged after the former Moon Jae-in administration stretched national debt too much.
The Yoon Suk-yeol administration faces an economic crisis from the beginning. Conditions are as grave as in 1998 when President Kim Dae-jung took office while the country applied for an international bailout to avoid a national default in the Asian financial crisis. The economic team under Deputy Prime Minister Choo Kyung-ho in the new administration must be on emergency posture. It must do all it can to contain inflationary pressure and stabilize people's livelihoods. Compensating the self-employed and small merchants for their sacrifices under the Moon administration's draconian Covid-19 mitigation rules is needed most. But financing is not easy. His economic team must design an upcoming supplementary budget bill so as not to fan inflation and interest rates in the market by issuing national bonds in excess.
Restoring economic vitality of the private sector is the only solution to resolving the crisis. The government has set the economic catchphrase of "private-led, government-pushed dynamic economy." In his inauguration speech on Tuesday, President Yoon stressed the importance of science, technology and innovation to speed up economic growth. The new government must carry out sweeping deregulation to add traction to the slow-moving economy. Yoon must have confidence in his economic team. This is not the time for political wrangling. The Democratic Party also must join the campaign to save the economy.
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