Internal policy mess is more worrying than external factors
Another U.S.-originated financial crisis is driving the global economy into shock and anxiety.
The back-to-back collapses of two U.S. banks ― Silicon Valley Bank (SVB) and Signature Bank ― are not likely to reproduce the global financial crisis of 2008.
There are more differences than similarities from 15 years ago. This time, the problem is more individual than structural. The U.S. government is also more ready to step in quickly to reassure the stability of its financial system.
After all, the U.S. is the key currency country, worrying more about inflation, i.e., economic overheating, than a business slump. Some countries can ill afford to remain complacent. As SVB also operates in several countries, including the U.K., Sweden, China, and India, some commentators say the crisis has just begun.
Korea is not among such countries and the ongoing turmoil will not spill over here. Still, financial authorities need to check for the possible effects that even a relatively small exposure might have on local startups. Korea is one of the 10 largest economies worldwide. However, it remains a small fry financially, as it was during the Asian currency crisis of 1998. When it comes to the economy, Seoul still catches a cold when Washington sneezes.
The Korean financial and monetary policymakers' concerns are different. To them, the Federal Reserve's potential "big-step" interest rate hikes are concerning, despite their critical impact on weak players at home and abroad. Suppose the Fed raises its benchmark rate to 6 percent to stem inflation. In that case, as observers note, the gap with the Korean rate could trigger a foreign funds exodus, while weakening the local currency and result in severe stagflation, given Korea's already sluggish economy.
Of course, the Bank of Korea will not sit idly to let that happen, we hope.
However, the Yoon Suk Yeol administration's economic performance in its first year provides causes for concern. Its economic report card is far from impressive, to say the least. Exports are falling, the current-account deficit remains in the red, prices are spiraling, real wages remain stagnant and the growth rate is entering the negative domain. The Yoon administration may be unlucky or incompetent, or both. What is most worrying is that it is coping with a 21st-century crisis with an economic mindset from the 1960s and '70s ― ship out more, tighten belts and work harder.
Yes, exports are, and will remain, vital to this small, open economy. Like ex-President Park Chung-hee, Yoon holds export promotion meetings every month. However, his renewed "export drive" is failing to convince people, especially the MZ generation, who question why increased outbound shipments are not leading to their income growth. Young people work hard only when it leads to their growth. For mere survival, they prefer "quiet quitting." Yoon's claim to become "Korea's No. 1 sales representative" is also meaningless if he sits and watches the America-first economic policy inflict damage on Korean semiconductor and electric vehicle makers.
One can hardly understand the economic philosophy of this president and his government. Sometimes it appears to be a return to the neo-liberalist economy from which the most advanced countries have graduated, as shown by Yoon's market-driven, competition-encouraging policies. At other times, it is interventionist, forcefully pulling down utility rates and even meddling in interest rate movements.
Even harder to understand is Yoon's appointments of former prosecutors to economically crucial posts, such as the top financial overseer. This anachronistic, amateurish, and atypical economic operation threatens Korea Inc. even more than external uncertainties.
General-turned-President Chun Doo-hwan deserves at least one legacy ― the economic boom of the 1980s. He picked the late Kim Jae-ik as his chief economic secretary and never intervened in what he did, saying, "You are the economic president."
Today, no Koreans think of Deputy Prime Minister for Economy Choo Kyung-ho, Yoon's economic czar, as the top economic policymaker. Choo changes his words as soon as his boss says something different.
Prosecutors may be smarter than soldiers. But when it comes to running the economy, IQ cannot beat experience.
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