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Senior financial pundits who were in charge of policy at the time of the 1997 Asian crisis have dismissed the threat of another financial crisis in Korea. The country¡¯s ¡°economic structure and composition have changed, so there will be no repeat of the foreign exchange crisis that happened 10 years ago,¡± said Kim In-ho, former presidential secretary for economic affairs. And Choi Yeon-jong, a former Bank of Korea senior deputy governor, said, ¡°It¡¯s true that the Korean economy is undergoing a difficult period, but we are not the only ones with a problem.¡±
As fears of a September financial crisis caused jitters in Korea¡¯s financial markets, with the won plummeting against the U.S. dollar and stocks taking a nosedive, the senior policy makers have come forward to offer reassurances. They say global economic movements, Korea¡¯s foreign exchange reserves and the nature of foreign debt are vastly different now than they were back in 1997.
But they agreed that Korea¡¯s economy is undergoing difficulties due to lackluster domestic consumption, weak investment and a shortage of jobs in a slow global economy. They also stressed that the government¡¯s economic policies must not damage foreign investor confidence.
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Dark clouds hang over Seoul on Tuesday afternoon as the financial markets struggled with a weakening won currency and plummeting stocks./Yonhap
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¡ß It¡¯s a different world
The pundits said the September crisis scenario was groundless, because Korea¡¯s economic fundamentals and foreign currency holdings are different than they were in late 1997, when $10 billion in foreign capital exited the country every day. Choi recalled that in November 1997, there was only about $5 billion worth of usable foreign exchange reserves at the disposal of authorities, which was not enough to cover even a day if dollar demand intensified. Now, they say, Korea has $240 billion worth of foreign reserves, while its overseas debt structure is sound enough to pose no difficulties in redeeming maturing debts.
¡°Since the foreign exchange crisis, there has been surprising improvement in the financial soundness of Korean businesses and financial institutions, foreign investment and foreign exchange reserve levels,¡± said Kim Seok-dong, a former vice finance minister. Kim said Korea¡¯s ability to withstand global economic crises is stronger than that of many other countries. The financial crisis in 1997 was centered in Asia, they said, but now it is the effects of the U.S. subprime mortgage crisis that have triggered a global financial crunch: there is little chance that Asia or Korea will emerge as single victims.
¡ß No immunity from global slowdown
While it is true that Korea¡¯s economy is undergoing a difficult period, the pundits say the primary reason is the global economic slowdown. It would be difficult for the Korean economy alone to prosper if the global economy is mired in a slump. Former Financial Supervisory Commission chairman Yoon Jeung-hyun, who worked at the Ministry of Finance and Economy during the Asian financial crisis, said the Korean economy cannot escape the impact of external factors such as high oil prices and a strong dollar.
Korea Investment Corporation CEO Jin Young-yook, who also worked at the ministry during the Asian crisis, said many economic indicators are not looking good, but this is a global trend. Korea Investment Holdings director Yoon Jin-sik, who was a presidential secretary at that time, said economic conditions are worsening but the situation is not a crisis. He added it is unlikely the Korean economy will recover until the end of 2009, when the global economy turns around.
¡ß Early warnings
However, Korea is a small-scale, open economy, so it is increasingly vulnerable to external shock, the pundits warned. They advised the government to be extra careful not to lose its ability to deal with economic variables and maintain its credibility on the international stage. Market Economy Research Institute chairman Kim In-ho, who was chief presidential secretary for economic affairs in 1997, said the most important job for the government is to project an image of credibility by properly assessing the problems facing the economy and showing the public that it is dealing with the situation.
Yoon at Korea Investment Holdings said many factors are likely to weaken the won further against the dollar. The best way to slow the pace would be for the government to refrain from intervening and leave the won to market forces for the time being. Choi said the government should focus on stabilizing consumer prices: reining in consumer prices now would allow the government to implement expansionary measures without worrying about inflation when economic conditions improve after next year.
Jin said it is impossible to manage a country¡¯s economy using outmoded fiscal and monetary policies in the age of the global economy. The government, he said, should pursue deregulation to create an environment that attracts both foreign and domestic investments, so that the country can reap benefits when the economy enters a recovery phase.
(englishnews@chosun.com )
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