Hopes for higher growth dashed, President Lee now faces grim reality

SEOUL, Feb. 23 (Yonhap) -- When President Lee Myung-bak was inaugurated one year
ago, the South Korean people watched him take office with high expectations and
some measure of doubt that he could actually deliver on his campaign promise of
bringing the slowing economy back on track.

Despite tough economic conditions, the CEO-turned-president assured people he
could help the country attain 7 percent annual growth, double per-capita income
and eventually lift his nation's economy to become one of the world's top seven
powerhouses.
Then the bottom fell out. Amid a global financial crisis and resulting worldwide
economic slump, those ambitious objectives now ring hollow as the government
humbly strives to avert the first recession in 11 years.
"They were too optimistic," said Jung Moon-seok, a senior economist at Hanwha
Securities. "Even after the financial turmoil started, the government remained
upbeat and busied itself containing fears, failing to take measures that could
have helped minimize its impact on the local economy."
Things are no better this year, experts say, as global economies are fast
slipping into recession, causing demand for Korean goods to decline in the U.S.,
Japan and Europe. South Korea's exports plunged a record 33 percent in January
from a year earlier.
To cope with faltering exports and domestic demand, companies have been scaling
back investment and reducing overall production. Industrial output shrank 18.6
percent in December from a year earlier, the steepest fall since related data
began to be compiled in 1970.
The labor market also suffered a setback with over 100,000 jobs evaporating in
January from a year earlier, marking the sharpest loss since October 2003.
"Given the worsening global recession, chances of a fast export recovery are slim
for the time being. Things will likely get worse rather than better for our
exports-driven economy this year," said Lee Eun-mee, an economist at Hyundai
Securities.
In an apparent bid to shore up confidence in his administration as it grapples
with the worst economic downturn in more than a decade, the president replaced
the nation's finance minister and other economic policymakers last month.
New Finance Minister Yoon Jeung-hyun was appointed to replace Kang Man-soo, who
had been under pressure to resign for what critics called "misguided" economic
and financial measures.
Yoon has said he expects around 200,000 jobs will evaporate this year and that
the economy will contract by 2 percent, a sharp downgrade from the 3 percent
annual growth projected in December.
"The minus growth projection is based on the latest expert opinions and economic
indicators," Yoon told reporters during his inauguration press conference on Feb.
10.
"As the new finance minister, it is unpleasant for me to offer such a grim view
of the economy but I believe that honesty is the first step toward regaining
trust in the government from the people and the market," he added.
Former Finance Minister Kang, President Lee Myung-bak's first choice to head his
economic team, frequently drew criticism for his export-focused currency policy
and dischords with the central bank over other economic measures.
His pro-growth policy hit a snag as a sharply sliding won drove up import costs
for oil and commodity prices, sending the nation's inflation to a 10-year high in
July last year.
Inflationary pressure eased soon afterward but Kang was caught off guard by the
abrupt collapse of U.S. investment giant Lehman Brothers Holdings Inc. in
September, which sent world financial markets into a tailspin.
The local stock market tumbled nearly 40 percent last year, while the Korean
currency lost 25 percent against the greenback, becoming one of the
worst-performing currencies in Asia.
Against this backdrop, the government and the central bank have joined hands to
resuscitate the economy and are pushing for corporate restructuring to boost the
its overall health.
The government is also seeking diverse stimulus packages including an extra
budget. The Bank of Korea, for its part, has lowered its benchmark interest rate
by 3.25 percentage points since October to a record 2 percent this month.
Entering his second year in office, President Lee and his economic policymaking
team are facing a bumpier road ahead as they must steer the economy away from
recession while dealing with volatile local financial markets.
On Friday, the won plunged to a three-month low amid worries that banks in
Eastern Europe will go bankrupt and deepening fears over an exodus from bond and
stock markets here.
Experts say South Korea is so exposed to external factors that it is tough to
protect the economy from ongoing financial turmoil. They call for more efforts to
be made to boost domestic demand to strengthen the nation's growth potential.
"Our economy depends too much on exports, leaving it more vulnerable to external
factors than other nations," said Park Sang-hyun, an economist at HI Investment &
Securities.
"Against this backdrop, more efforts should be made to boost domestic demand. The
government is required to come up with measures aimed at raising the nation's
longer-term growth potential."
kokobj@yna.co.kr
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