EDITORIAL from the Korea Herald on April 3)

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Bottoming out?

Trade surpluses are expanding. Stocks are strengthening. Exchange rates are
stabilizing. And business sentiment indicators are improving as well.

Are all
these unmistakable signs that the Korean economy is finally bottoming out?
Perhaps. The state-funded Korean Development Institute predicts a rebound in the
second half of this year.
But the good news is tempered by unwelcome developments - a continuous drop in
industrial output and a rising jobless rate, to name a few. Simply put, it is too
early to conclude that the Korean economy is moving in the right direction.
Last month, the nation posted $4.6 billion in trade surplus, a historical high.
The previous monthly high was $3.85 billion recorded in April 1998. An ebullient
President Lee Myung-bak told CNBC, a U.S. business news channel, that he expected
this year's surplus to range from $15 billion to $20 billion.
If the prediction is not far off the mark, it should be no small feat for the
nation, which had a $13.7 billion deficit last year. It should also help
stabilize the financial markets.
The Korean currency and stocks are on a rising curve, proving that doomsayers
were grossly misguided when they predicted an impending March financial crisis.
Contrary to their predictions, the domestic financial markets regained stability
after a short period of wild fluctuations.
No wonder business sentiments are improving. According to the latest monthly
survey conducted by the Bank of Korea, an increasing number of manufacturers are
expressing optimism for business this month. Their confidence, the central bank
says, is boosted by improving financial stability and the forthcoming stimulus
spending.
Growing optimism among business enterprises is also confirmed by a recent
newspaper survey of 30 large corporations. Twenty-one of the CEOs said their
companies did better this quarter than in the previous one or did better than
they had expected.
Despite all these encouraging signs, however, there are many pitfalls on the road
to recovery. Take trade for instance. The huge surplus in March was not the
result of increasing exports. On the contrary, shipments fell 21.2 percent.
External trade produced a surplus because imports dropped at a faster pace.
Trade surpluses in the past two months were made possible because the Korean won
remained weak. Now that it is gaining against the U.S. dollar and other hard
currencies, Korea's trade surpluses, if not wiped out, may continue to fall in
the months ahead. Moreover, the global demand for Korean-made products may
weaken, if the world economy shrinks 2.7 percent this year, as forecast by the
International Monetary Fund.
If so, it is matter of time before the burgeoning business confidence fizzles
out. And though confidence is improving, optimists are still outnumbered by
pessimists. The central bank's April business survey index, which has gained 10
points from last month to reach 60, is still well below 100 - the point with
equal numbers of optimists and pessimists.
Against this backdrop, businesses cannot afford to lower their guard against the
global economic crisis. They will have to continue to cut costs, improve
productivity and spend heavily on research and development if they are to
maintain a competitive advantage when the won regains strength.
For its part, the Lee administration cannot afford to slacken its efforts to
achieve its goal of curbing this year's economic contraction at 2 percent. It
will have to push ahead with the fiscal, monetary, taxational and other policy
initiatives it has laid out for an early recovery. The Korean economy may shrink
4 percent to 5 percent, as predicted by some think tanks, if the administration
fails to take proper action in its fight against the economic crisis.
(END)