(EDITORIAL from the Korea Times on Aug. 4)

Premature optimism
What matters is not rapid but solid recovery

A decade ago, Korea became the object of envy by overcoming the Asian financial
crisis more rapidly than anyone else. Later, the nation suffered from the "credit
card fiasco," an after effect of a hasty, artificial recovery.
The lessons of the 1990s ??? which reaffirmed there can be few short cuts to
curing long, chronic economic ailments ??? should remain effective today when
media reports, both at home and abroad, are marveling at this country's ability
to rebound from what looked like an abysmal situation only a year ago.
Watching a seemingly endless list of hopeful indicators reeled off by various
agencies ??? industrial output, capacity utilization ratio, machinery order
receipts as well as corporate and consumer sentiments ??? it seems rather hard
not to be optimistic. Many analysts are taking a "V-shaped" recovery as granted,
backed up further by dizzying ascent of the stock market.
However, at least two questions must be asked at this point: whether the recovery
is real or illusionary; and if is real, whether it is fleeting or lasting.
Everybody knows the ongoing revival is thanks mainly to the government's stimulus
of fiscal spending and tax cuts. But the bulk of taxpayer money has been
allocated to massive public works, the economic effects of which, including job
creation, are doubtful at best. The tax breaks for motorists who replace their
old vehicles with new ones ??? the Korean version of "cash for clunkers" program
minus the fuel-efficiency factor ??? is what economists call a "recovery borrowed
from the future," as the step does not induce, but advances auto purchases.
This, when combined with another tax cut for property buyers, would end up only
seriously aggravating the government's fiscal health, as the International
Monetary Fund recently pointed out by including Korea among one of the seven
countries with the biggest deficit concerns. What's more serious and dangerous is
that policymakers could lose the timing to put the Genie of property speculation
back into the bottle unless they remain extremely attentive.
Most of all, the domestic recovery can't last long without a major rebound in
global and domestic demand. As the recovery of major economies takes some time,
at stake is how to revive the domestic demand. But the prospects are quite dismal
as shown by exacerbating employment figures, which currently is the only gloomy
factor but one that can mar the rosy picture in all other sectors.
Capital spending by businesses, one of the two pillars to boost the domestic
demand along with private consumption, is hard to expect, given the sentiments of
major conglomerates, which increasingly cite the political and labor circles as
the reasons for their reluctance to invest. All of which leaves consumption as
the only hope for a sustainable recovery, which, in turn, is not possible without
providing more jobs.
The good news in this regard is the government seems to know the present
situation, including the danger of a fragile recovery and hasty optimism. The bad
news is it still is seeking a remedy in the wrong places, as shown by its
adherence to tax cuts for wealthy businesses and individuals and massive civil
engineering projects, under the pretext of "policy consistency." No, this is a
case of "better late than never" in making a turnaround. Otherwise, what awaits
the nation will be a "W-shaped" economic cycle called the double dip.
(END)