(EDITORIAL from the Korea Herald on March 21) - Glimmer of hope?

Private think tanks are joining government agencies in their cautious prediction that the Korean economy will bottom out in the first quarter. The Finance Ministry and the Bank of Korea agree that the nation's performance in the first quarter will be no worse than in the previous quarter.

The official outlook is shared by two private think tanks - the LG Economic
Research Institute and the Hyundai Research Institute. They say the annualized
rate of growth will be about the same in the first quarter as in the previous
quarter or one percentage point higher.
That low level of growth may not be seen to count much, and all the more so
because growth in the previous quarter was at minus 5.6 percent. Even so, it
cannot be belittled because it may signal an end to the contraction which many
still worry will continue much longer.
Other signs of recovery are observed in other areas. For instance, the number of
corporations failing to make good on their promissory notes fell from 260 in
January to 230 in February. On the other hand, newly incorporated businesses
numbered 4,227 last month, up from 3,664 in January.
Another promising development comes from a recent survey of 52 corporations
listed on the KOSPI 200 index. According to the poll, their combined operating
income is expected to increase 80 percent this quarter from last quarter despite
a 3.8 percent decline in their turnover. Indeed, many of the Korean flagship
businesses, such as Samsung, LG and Hyundai-Kia Automotive groups, are doing much
better than their foreign rivals in global markets.
But the most hopeful sign is found in the trade surplus outlook for this month.
Korea's external trade is expected to produce a huge surplus in March for the
second consecutive month.
True, exports are far from robust. The ministry in charge predicts they will post
a 22 percent fall this month from a year ago. It does not expect monthly exports
to recover to last year's level during the first half. Fortunately, however, the
drop in imports will be much larger.
As a consequence, the ministry says, the March trade surplus will reach a
historical high of $4 billion. It is coming on top of the $2.92 billion surplus
posted in February.
All the positive signs are truly welcomed in these times of gut-wrenching
hardship. But the problem is that these signs are too feeble to conclude what we
are seeing at the moment is light at the end of the tunnel. That is the reason
why policymakers will have to listen to a contrarian claim that the recovery in
the making is nothing but a visual illusion created by the unwarrantedly weak
Korean currency.
A weak won makes Korean exports, from autos to mobile phones, less expensive and
more competitive than their Japanese rivals. A top LG Electronics executive was
right to warn that Japanese electronics makers will emerge more competitive
should the Korean currency regain its previous strength before the end of this
year, as widely expected.
The government and corporations have much work to do to prevent the glimmer of
hope about recovery from degenerating into a visual illusion. Once contraction is
arrested, they will have to strive for a U-shaped recovery, if not a V-shaped
one.
The government needs to encourage corporate investment, giving such incentives as
tax breaks and deregulation. Predictions have it that facility investments, which
fell 2 percent last year, will decline even more if no action is taken.
Investing in new facilities ahead of a full-fledged recovery should be a good
business strategy. No less wise would be to increase spending on research and
development now. Ultimately, it is technology that sets winners from losers.
(END)