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2017-02-22 21:04
Finance minister's inward-focused view raises concerns

By Kim Jae-kyoung

SINGAPORE — “Is South Korea heading toward another crisis similar to the one in 1997-1998?”

This is the question a few businesspeople in Singapore recently asked me, citing a series of mishaps, including the collapse of Hanjin Shipping, the massive recall of the Samsung Galaxy Note 7 and the country’s worst political scandal surrounding President Park Geun-hye.

A few days later, I came across a special program on Korea aired by Singapore-based Channel NewsAsia, one of the most influential channels in Southeast Asia. The program featured the turmoil Asia’s fourth-largest economy is experiencing.

A female anchor started the show by remarking, “South Korea is one of the world’s top exporting countries. Its economy has often been described as high-tech and innovative. But the nation’s global reputation and branding have been severely undermined.”

Although concerns over another crisis are somewhat overblown, the two incidents have combined to indicate that the media and people abroad have started looking at Korea much differently than they used to.

In other words, several economic disasters, together with a bleak domestic situation, have come to make more foreigners believe that Korea’s economy is not as resilient and attractive as it was.

However, the real concern lies in Korean policymakers’ inward-focused and myopic view of the economic situation.

Responding to questions Monday on the possibility of another economic crisis, Strategy and Finance Minister Yoo Il-ho said, “Chances are very low that the Korean economy will experience a critical situation like the 1997 currency crisis and the 2008 global financial crisis.”

His comments came amid growing fears that the Korean economy may indeed face a crisis in the coming months if Daewoo Shipbuilding & Marine Engineering fails to pay its debt due in April and the country is labeled a currency manipulator by the Trump administration.

To top it off, domestic economic indicators are all pointing to a downturn. Koreans are feeling much more desperate than they should be amid mounting debt and soaring unemployment rates.

Thankfully, most global investors and credit ratings agencies still believe that Korea’s economy is not exposed to an acute economic crisis because of ample foreign exchange reserves and sound external debt positions.

However, policymakers should be aware that Korea’s reputation is gradually deteriorating and the situations could suddenly turn for the worse if there is any external trigger.

History shows that a crisis happens without warning. More importantly, a crisis is driven at a certain point by investors’ fears about the dismal outlook and image of the economy, not by bad economic numbers.

Against this backdrop, the Korean government should take action with detailed contingency plans to preempt groundless fears instead of just saying there is little possibility of a crisis. Once you come to sense a crisis, it will be too late to take any action.

In addition, the government should keep a close watch on how the economy is viewed by investors and businesses outside Korea. Image is built based on what people see and hear, not what the government wants them to believe.

Finally, Yoo and other policymakers need to heed the warning from one global investor.

“South Korea is not likely to experience an acute financial crisis at this moment,” the Singapore-based investor recently said on condition of anonymity.

“However, if there is a trade war initiated by the United States, Korea will be the biggest victim and face the worst-ever crisis.” 

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