Koreans Must Stand Together to Weather Economic Crisis

      June 24, 2022 13:18

      Korean stocks are plummeting to new yearly lows as foreign investors continue their selling spree, spooked by the U.S. Federal Reserve's interest rate hike, while the won weakened to the W1,300 level against the dollar for the first time since the global financial crisis. The Bank of Korea in a report earlier this week showed that a 0.5 percentage point rise in loan interest rates forces self-employed people in the bottom 30 percent of the income bracket to spend 48 percent of their earnings to service their debts, and the chief of the Financial Supervisory Service has warned of a "perfect storm" ahead.

      The direction of the economy is murky at best, but unionized workers are demanding an 18.9-percent hike in the minimum wage. Unions representing civil servants and bank workers are also demanding a six to seven-percent wage hike to keep up with inflation and share record profits and tax revenues. In contrast, small and mid-sized companies say the unions' demands will make it impossible for them to stay in business.

      The country cannot overcome this economic crisis if everyone is only focused on their own interests. Runaway inflation is partly due to uncontrollable factors like the coronavirus pandemic, Russian invasion of Ukraine and global supply chain disruptions. But if Korea falls into the vicious cycle of hiking wages to keep up with rising consumer prices, inflation will get out of control. This is a time when each economic player must tighten their belt and look for ways to share the pain.

      President Yoon Suk-yeol has asked banks to refrain from raising interest rates, while the floor leader of the ruling party has urged oil refiners to share the pain. Banks, which reaped a record-high W34 trillion in interest profits last year due to the increase in the base rate, must minimize loan interest rates regardless of the BOK's moves to tame inflation and ease the debt burden on low-income households. Oil refiners must boost productivity and suppress price increases at the pump, while unionized workers should prioritize job security and refrain from demanding wage hikes for now.

      The government, too, should not simply ask businesses and workers to make sacrifices but set an example. Government workers accepted wage freezes during the 1998 Asian financial crisis and the global financial crisis in 2009. The money saved was used to create jobs and provide more support for the needy. That would also be a good idea this time.

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