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No big picture

Aug 17,2019
The Korea-Japan trade dispute coupled with the Sino-U.S. currency war is pushing the Korean economy into a corner. Investors are embarrassed to see a simultaneous fall of the Korean won and local shares. Korea’s jobless rate for July reached 3.9 percent, the highest since 2000. The number of applicants for unemployment benefits topped 101,000 last month, which means the government spends more than 700 billion won ($578 million) a month to help the jobless survive. That is a stark reminder of what we experienced during the 1997-98 foreign exchange crisis.

If you take a deeper look at the situation, it is even more serious. Despite the government bragging about 300,000 new hires, they were mostly confined to people aged 50 and over — thanks to heavy government spending on those jobs. But people in their 30s and 40s — the backbone of our economy — have trouble finding a job in the manufacturing sector. That took a toll on domestic consumption as seen in a 7.4 percent increase in average worker’s loans compared to the previous year.

Nevertheless, the Moon Jae-in administration simply reiterates that our economy’s fundamentals are strong. Deputy Prime Minister for the Economy Hong Nam-ki pinned his hopes on the “remarkable strength” of our sovereign credit rating and foreign reserves. Moon took it a step further. In Thursday’s address on our 74th Liberation Day, Moon said that South and North Korea can create an 80 million-strong single market while maintaining separate systems and then build the sixth largest economy if unification is achieved. He said that a unified economy could usher in an era of $70,000 to $80,000 per capita incomes by 2050. How can our unification with one of the poorest countries in the world lead to such results?

Korea is proud of its foreign reserves surpassing $400 billion, low ratio of short-term foreign loans, and a trade surplus for seven consecutive years. But Fitch Ratings warned of Korea having trouble maintaining its credit rating of AA-. It has already dropped its projection for Korea’s growth for next year to 2.3 percent from 2.6 percent.

The government has no big picture. It fiddles with impromptu measures such as a possible regulation on short-selling if the stock market crashes or an easing of the 52-hour workweek. Such lax attitudes can hardly calm the jitters of the markets. The government must face reality squarely and find detailed ways to fix our problems before it’s too late. Otherwise, Moon’s hopes to make Korea a country no one can bully will never come true.