The economic elders who faced the crisis in the past defined the current situation of the Korean economy as a crisis with Lee Gu-dong. He said that now is clearly different to the financial crisis of 1997 and the global financial crisis of 2008-2009, but in some ways it is a more challenging and difficult situation than it was then. This is because external conditions that will influence the Korean economy are structurally changing, such as the Russian-Ukrainian war, China’s low growth, and monetary tightening by major countries including the US central bank (Fed). The Korea Economic Daily interviewed five economic elders by phone: former Strategy and Finance Minister Yoon Jeung-hyun, former Bank of Korea president Park Seung-seung, former Bank of Korea President Kim Jung-soo, former Chairman of the Services Commission Financial Jeon Kwang-woo, and former Chairman of the Financial Services Commission Choi Jong-koo to hear answers in the middle of the enlarged complex crisis.
“China’s role has changed”
“Korea is at a ‘structural turning point’ where it needs to change its export-oriented growth engine to China,” Park said. Thanks to China’s trade opening and full industrialization in the early 1990s, Korea has generated a huge trade surplus in heavy and chemical industries such as steel and shipbuilding for the past 30 years, but this situation is unlikely to continue any longer. This is because labor costs in China have risen and technology has advanced to the point where it is no longer necessary to import intermediate goods from Korea.
Park noted, “Korea is at a turning point in entering a long-term low growth period as China has not been able to lead Korea’s demand (due to a fall in the growth rate).” “Under this situation, Korea faced a period of low growth, high interest rates and high exchange rates due to the austerity monetary policy led by the United States. But the politicians were fighting every day, and the timing was missed.”
Former Chairman Jeon Kwang-woo said, “Things like foreign debt structure and foreign exchange reserves are much better now than during the 2008 crisis,” he said. He also said, “International cooperation was successful during the 2008 crisis, but now the disconnect between the US and China is deepening and international cooperation is not working well because of the war between Russia and Ukraine, so it we all have to survive.”
Former Chairman Jeon said, “You must not think or stick to the short-term measures taken in the past. It’s a situation of stagflation.” “The rate of depreciation of Korea’s currency against the dollar is higher than that of ASEAN countries or China, so it leads to a trade deficit.” He said.
“Everyone should share the pain.”
Regarding the Korea-US currency exchange, which is being discussed as an alternative to the stabilization of the exchange rate, the main voice was ‘excessive expectations are not allowed’. Former Chairman Choi Jong-koo said, “Currency swaps will help stabilize the exchange rate, but the upward trend in the exchange rate will never stop because of the strong dollar.
Former Governor Kim Joong-soo said, “It is not appropriate to speak simply based on how much the exchange rate has risen because the currency exchange is a measure for stabilizing the financial market.” “It is important for the government not to overestimate itself while responding to inflation and exchange rates, and to communicate a lot so that people can trust it,” he said.
He also said, “There are internal problems (current situation), but external factors have come to a large extent.
Former minister Yoon Jeung-hyeon diagnosed the current economic situation in Korea, saying, “The internal and external balance is breaking down.” External balances such as the trade balance, the current account, and the exchange rate, which focus on exports, and internal balances such as growth, inflation and interest rates all fail. “In the real sector, job losses and investment are shrinking due to low growth, but household debt is increasing and interest rates are rising,” said former Minister Yoon. “What is more serious is that there is no perception of a crisis among economic agents now, unlike the foreign exchange crisis or the financial crisis,” he said.
Regarding the solution to this crisis, former Minister Yoon said, “When the internal and external balance is disrupted in a country like ours, where we live on exports without resources, we must first solve the external balance. ” he advised. He continued, “As we are in a situation where we have to tighten our belts to protect the value of the currency, unions should refrain from demanding a wage increase, and businesses should make efforts to stabilize employment commensurate with it. the pain by using them,” he said.
By Jeong Eui-jin / Lim Do-won / Hwang Jeong-hwan, staff reporter [email protected]