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(EDITORIAL from Korea JoongAng Daily on June 21)

Editorials from Korean dailies 07:02 June 21, 2022

An ongoing game of chicken

Concerns about financial markets are deepening. Both the KOSPI and KOSDAQ fell to the lowest levels this year. The foreign exchange market was no exception. On Monday, the won's value dropped to the bottom for fear of a looming recession after central banks of major economies rushed to raise their benchmark rates to keep inflation in check.

The Wall Street Journal has released the results of a survey in which 44 percent of the respondents believed a recession will prevail within 12 months. The percentage is higher than the 38 percent predicted by economists in December 2007, shortly before the global financial crisis.

The Korean economy is more susceptible to the rate hikes than the United States. Korea's total household debt — which stands at a whopping 1,895 trillion won ($1.44 trillion) as of the end of the first quarter — accounts for 104.3 percent of the GDP. Coupled with the simultaneous decline of stock prices and bonds and cryptocurrencies, people — particularly the young — who invested in financial assets belatedly after borrowing money from commercial banks are frustrated more than ever. Given expected increases in benchmark rates down the road, borrower pain is deepening out of control due to the growing cost of interest payments, not to mention colossal losses from their investment in assets.

Stock prices of Samsung Electronics, the flagship of the Korean economy, plunged to the 58,000-won range, a 52-week low. Due to a stampede to sell the stocks worth 8 trillion won by foreign investors so far this year, stock prices of the electronics giant plummeted by 25 percent. Vice Chairman Lee Jae-yong held an emergency meeting on Monday with CEOs of the affiliates of the conglomerate. In that meeting, Lee reiterated the importance of maintaining technological competitiveness over its rivals.

Crisis demands alertness from stakeholders. Households and companies must wisely manage their risks, and the government must thoroughly prepare for potential risks, domestic and external. The frequent exchange of opinions between Deputy Prime Minister for Economic Affairs Choo Kyung-ho, who also serves as finance minister, and Bank of Korea Gov. Rhee Chang-yong can send good signals to market players. Choo has vowed to meet Rhee often.

Nevertheless, the National Assembly has been sitting on its hands for three weeks. Mired in a sharp battle over who should take the chairmanship of the powerful Legislation and Judiciary Committee, lawmakers don't do anything. President Yoon Suk-yeol pleaded for cooperation from the legislature before it is too late. Lawmakers must help rescue the economy from the massive storm.
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