EDITORIAL from the Korea Times on June 16)

Rising uncertainties
Korean economy stands at the crossroads

The Korean economy is likely to grow around 2 percent in the second quarter of
this year from the previous quarter when the growth rate stood at 0.1 percent.

The projection is fueling hope that the country might emerge as the world's
fastest recovering economy from the unprecedented global economic crisis. But it
is still too early to predict that South Korea will see a full-fledged recovery
this year.
It is better to take a cautious approach as economic uncertainties will increase
in the July-September period. It is hard to exclude volatile factors in the
global financial market. There are growing concerns about a surge in raw
materials prices, unstable movement in the won-dollar exchange rate and
escalating geopolitical risks arising from North Korea's nuclear brinkmanship.
South Korea now stands at the crossroads: to continue its trend of an economic
turnaround, or to go back to a recession. Against this backdrop, the economic
team of President Lee Myung-bak is required to overhaul the nation's
macroeconomic policy that has been focused on economic stimulus since the
worldwide crisis hit the country last September.
First, the Lee administration has to take timely and appropriate measures to cope
with a surge in the prices of crude oil, minerals and other raw materials. Dubai
crude surpassed the $70 mark per barrel last week, a steep hike from the average
$44.3 per barrel between January and March. Oil prices might rise further as
investors rush to bet their money on crude driven by some signs of an economic
turnaround. Prices of copper and aluminum also have so far jumped 30 percent and
10 percent, respectively.
Second, the financial authorities should make concerted efforts to stabilize the
value of the Korean won against the U.S. dollar. The exchange rate is currently
moving in the 1,260-won level per dollar, compared with 1,570 won per dollar in
early March. Neither an excessive deprecation nor overvaluation of the won is
good news to all economic players. A further strengthening of the won is feared
to make Korean products more expensive on overseas markets, making a dent in the
nation's exports and worsening profitability of many firms.
Third, the government must go all-out to minimize the fallout of the North Korean
nuclear crisis. Pyongyang is heightening tensions by threatening to start
enriching uranium and weaponizing all its plutonium stockpiles to protest tougher
U.N. sanctions following the North's second nuclear test. How to control these
geopolitical risks will have a great impact on the economy. Thus, Seoul needs to
step up security cooperation with the U.S. and other allies to reduce tensions on
the Korean Peninsula and avoid any potential damage to investor sentiment.
In addition, the nation should speed up corporate restructuring and financial
reform to get rid of uncertainties. It also has to reduce its heavy reliance on
exports by expanding domestic demand. What's more important is to generate jobs,
encourage companies to invest more, and create new growth engines.
(END)