(EDITORIAL from the Korea Herald on Feb. 13) - `No magic wand`

Few would have greater access to economic data than the finance minister, who is
advised by renowned state-funded think tanks such the Korea Development
Institute. He regularly receives reports on changing indexes and indicators
before they are made public.
As such, it should come as no surprise that former Finance Minister Kang Man-soo
concluded several months ago that the Korean economy would contract this year.
But the timing of the confirmation has come as a shock. Kang said that he had
reported his findings to President Lee Myung-bak late last year.
The confession, made three days before his departure from his ministerial post,
confirmed suspicions about the administration's economic policy. Kang virtually
acknowledged that the administration was withholding economic data from the
public to paint a rosy picture of the future when the economy was in serious
trouble.
In an official news briefing in mid-December, Kang made no attempt to revise an
earlier growth outlook. Instead, he said that growth would be at 3 percent in
2009 -- an estimate on which the 2009 budget request had been based.
Was Kang beholden to Lee's election promise of 7 percent annual growth when he
misled the public? He offered no explanation. Nor did he say anything about the
belated confession. But there is no denying that he did great damage to public
confidence in the administration's policymaking.
Now, it is his successor, Yoon Jeung-hyun, who will have to clean up the mess. On
his first day in office on Tuesday, Yoon took the first step in restoring public
confidence by revising the 2009 growth forecast to minus 2 percent. As he said,
there is "no magic wand with which to put the economy back on track overnight."
The revised forecast may still be thought of as optimistic, at least from the
perspective of the International Monetary Fund, which recently said the Korean
economy would shrink 4 percent this year and expand 4.2 percent next year. But it
is far from overly sanguine, given that forecasts by international lenders and
investment banks hover around the minus 2 percent level.
A logical extension from the revised growth forecast is a change in the revenue
projection or the spending plan or both. Tax collections will dwindle as business
activities slow down. According to conventional wisdom, a 1 percentage point drop
in the growth rate means a reduction in tax revenues ranging from 1.5 trillion
won to 2 trillion won.
Now that the administration is planning to spend its way out of the economic
crisis, it will have to increase its revenue by issuing debt instruments, and
selling off state-owned assets if necessary. That is the reason why the new
finance minister will hasten to draw up a supplementary budget.
Initially, the administration had planned to frontload fiscal spending, review
its impact in the second quarter of this year, and determine whether or not to
ask for a supplementary budget. But the economic conditions are worsening at a
faster pace than anticipated, calling on the administration to draw up a plan for
additional spending at an earlier date.
This is evidenced by the latest export and employment figures. In January,
exports fell 32.8 percent from a year ago, the largest drop since the government
started to tally monthly trade in 1980.
The number of people with jobs declined by 103,000 from a year ago, the worst
figure since September 2003. The worst is yet to come, with the new finance
minister saying that as many as 200,000 jobs will disappear this year. This
prediction is in sharp contrast with the administration's earlier promise to
create 100,000 jobs.
The finance minister has no time to waste in stemming the tide. He has to start
drawing up an additional spending plan immediately.
(END)