Behind the ever weakening won and the plummeting stock market are fears of a massive exodus of foreign capital from the local bond market this month. If that happens, the won will go into freefall, interest rates will rise and there will be a string of bankruptcies at financial institutions. It has already been some time that the construction sector and a number of big conglomerates, which have grown in size through mergers and acquisitions, have been plagued by rumors of a liquidity crunch.

The reason our economy is so vulnerable to a number of imaginary scenarios is because of a fundamental feeling of unease about the economy. The growth rate, consumer prices, unemployment, the international balance of payments and other major economic indices are disconcerting. Growth is expected to fall from 5.3 percent in the first half of this year to less than 4 percent in the second half, while consumer prices are rising by more than 6 percent. Korea posted a $11.6 billion trade deficit until the end of August. In July, a total of $9.6 billion in foreign investment left Korea’s bond and stock markets, the largest amount ever. Korea’s short-term debts have risen sharply and are expected to turn the country into a net debtor nation for the first time in eight years. Many are comparing present conditions to the period just before the Asian financial crisis in late 1997.

Economic conditions abroad are equally worrying. Global oil prices recently fell to the $110 level per barrel, leading to sighs of relief, but the global economy is slowing down rapidly. The economies of Europe and Japan posted negative growth during the second quarter, and the U.S. economy too is expected to post minus growth in the fourth quarter of this year. China is experiencing an “Olympic hangover,” with its economic growth slowing down while consumer prices are soaring. This means that Korea’s exports, which have offered a breakthrough for the country’s economy, face rough roads ahead.

The only solution is for Korea to look within its own economy for ways to overcome this grave situation. The most pressing task is to stabilize the financial markets. Businesses suffering from rumors of a liquidity crunch must take the initiative and find ways to improve their operations, including restructuring efforts. If rumors of a liquidity crunch are groundless, then the businesses that are the targets of such fears must present information to clearly resolve the misunderstandings. The only way to revive our economy is to clearly address jitters rattling the domestic financial markets. Officials must refrain from making thoughtless comments like saying Korea’s economy was “well defended.” It is time for the government and businesses to come up with concrete policies and actions that can restore confidence among the public and market participants.