(EDITORIAL from the Korea Herald on Jan. 7)

Exit from stimulus

One economic policymaker after another says he will take caution in implementing
a strategy to exit from the stimulus package of low interest rates, expansionary
fiscal spending and abundant liquidity. There is no denying that caution is a
virtue required of those administering state affairs.
Even so, isn't it time to encourage a lively debate among top economic
policymakers on an exit strategy, instead of repeating "caution" as if it were a
part of the administration's 2010 economic policy? Extreme caution may do more
harm than good.
But President Lee Myung-bak effectively put a gag on contrarians when he said at
the turn of the year that the nation's economy would be placed on an emergency
footing until the end of the first half. He repeated the mantra in his New Year
address.
It is not clear whether or not the governor of the central bank is on the same
wavelength as the president. But he did not deviate from Lee's policy when he
talked about his monetary policy at the end of last year.
He said he would maintain an easy monetary policy to help the private sector
regain growth momentum and, for some time to come, keep the benchmark rate at a
level low enough to help promote a early economic recovery. The finance minister
and other policymakers also reiterated that the nation should be prepared for
wild fluctuations that might bedevil the global financial markets again.
But Korea is seen to be the first among members of the Organization for Economic
Cooperation and Development to come out of the global financial crisis. Its
economic recovery is so fast that many may wonder if it is really necessary to
accelerate it further by frontloading budgetary spending, as promised by the
administration, in addition to keeping the benchmark rate at a low level.
The Korean economy has gained the pre-crisis level of growth momentum, as
evidenced by the administration's target growth rate of 5 percent for this year.
Moreover, news reports say that the administration is considering raising that
figure to 6 percent.
It is not the target growth rate alone that is testimony to the Korean economy's
renewed vitality. Last year, Korea had a $41 billion trade surplus, the largest
ever, which helped push its foreign exchange reserves to the highest level - more
than $270 billion.
It may be only a matter of time before corporations start to spend on plant and
equipment in earnest and consumers relax their purse strings again. Indeed, the
Hyundai-Kia Automotive Group, Samsung, LG, SK and other business conglomerates
have become confident, and are now aggressive in their business strategies. They
say they are working on how to strengthen their presence in global markets, what
to develop as their future growth engines and what action to take to ensure
competitive advantage in the New Year.
Admittedly, the U.S. economy is turning around. But few would say it is as
healthy as the Korean economy. Nonetheless, the U.S. Federal Reserve is
reportedly working on a robust exit strategy of helping to drain the huge amount
of liquidity pumped into the economy.
Fed Chairman Ben Bernanke was quoted as saying on Sunday that the exit strategy
"includes both raising the interest rate that we pay on reserves, plus a number
of measures that we have been testing that will allow us to drain reserves from
the system." His remarks are worth comparing with those of the governor of the
Bank of Korea, who says he will not tighten the spigot on liquidity, at least for
the time being.
The administration and the central bank will do well to develop an exit strategy
at an early date and prepare themselves to put it to use at anytime as an
antidote to asset bubbles.
(END)