(EDITORIAL from the Korea Herald on Jan. 24) - Building confidence

Everybody knows the Korean economy is in bad shape. But not many would have imagined it is as bad as it really is: Gross domestic product posted a 3.4 percent year-on-year decrease in the final quarter of last year, and, what is worse, there may not be an early recovery.

The Bank of Korea said on Thursday that in the fourth quarter, GDP fell 5.6
percent from the previous quarter and 3.4 percent from a year ago. It was the
first time in 10 years for GDP to contract on a year-on-year basis. In the final
quarter of 1998, GDP shrank 5.6 percent.
But a consensus among economic analysts is that there will be no early rebound.
On Wednesday, the Korean Development Institute revised its 2009 growth forecast
downward, from the previous 3.3 percent to 0.7 percent. It said GDP would fall
2.6 percent in the first half before rising 3.8 percent on additional fiscal
spending.
Though the government-funded economic think tank may have shocked many by
slashing its earlier estimate by as much as 2.6 percentage points, its revised
forecast of near zero percent growth may still be higher than warranted. Some
foreign forecasters are far more pessimistic.
Among them is Morgan Stanley, which said Korea will experience a 2.8 percent fall
in GDP this year. A similar view is held by Fitch Ratings, which said contraction
will be at 2.4 percent.
No Korean should be blamed for feeling cheated. The economic team headed by
former Finance Minister Kang Man-soo promised 6 percent growth when there were
signs of a global financial crisis. Then it revised the growth estimate to 3
percent and maintained that it would be attained despite the crisis.
It was only recently that the economic team began to drop hints that the economic
conditions were much worse than it had anticipated. Consistency in policy was the
last thing that it could maintain.
Now the question is if it was the economic team's deliberate deception or
outright incompetence that misled the Korean people. Either way, it should be
held responsible for the consequences, if not for the nation's poor economic
performance.
Foremost among the consequences is a loss of public confidence in the
government's economic policy. Who would believe what the government says when its
diagnosis and prognosis are grossly misplaced?
One of the first jobs Finance Minister-designate Yoon Jeung-hyun and his economic
team will have to do is run a reality check on the state of economic affairs and
make the outcome public. Then it will have to revise the 2009 budget envisioning
3 percent growth and stitch together a recovery policy, which could include a
supplementary budget if necessary. Otherwise, Yoon will find it difficult to make
good on his promise to regain public confidence in the government's economic
policy.
Yoon will have to exercise strong leadership and send a clear message to the
general public and the market on the direction the government will take in
pursuit of recovery. For recovery, he will have to cooperate closely with the new
senior president secretary for economic affairs, Yoon Jin-sik, and Chin Dong-soo,
new chairman of the Financial Services Commission.
The new economic team has much work to do - creating jobs, easing the credit
crunch, stabilizing the foreign exchange market and keeping the stock market from
plunging again, to name only a few. Each job will turn out to be a Herculean
task.
All the work that it has to do demands full support from President Lee Myung-bak.
While limiting his role to making decisions on key issues, he will have to throw
his full weight behind the economic team whose leading members are finance
experts. Any attempt at micromanagement will be of no help.
(END)