(EDITORIAL from the Korea Herald on June 22)

H2 economic plan

One of the most daunting tasks given to government policymakers is to determine
the economic conditions, both domestic and global, in the months ahead.

They must
take extra care in making a decision because a policy adopted on an incorrect
prediction may have grave consequences for all economic players - the government,
corporations and households.
When the economic situation was stable, all they had to do was announce a package
of economic policies at the outset of the year and fine-tune them, if necessary,
as the months went by. That is no longer possible. There is no predicting what
direction prices, output, exports and other economic indicators will move in next
quarter.
The policymakers find it difficult to produce a durable half-year economic
management plan, let alone one for the entire year. That is understandable, given
that certainty and predictability have become rare commodities since the world
was thrown into the worst global crisis since the Great Depression.
At issue is whether or not to continue the economic management of the first half
of this year, characterized by fiscal stimulus and low interest rates, into the
second half. A final decision will have to be made by the end of this week when
the administration is scheduled to announce its second-half plan.
But the administration and the central bank differ in their assessments of
economic affairs. The finance minister says the economy is still declining,
though the speed has slowed, suggesting that there will be no drastic change in
policy in the second half.
But the governor of the central bank says the slide seems to have been arrested.
In other words, he is saying that the administration will now have to craft an
exit policy for use when the economy resumes healthy growth.
The governor's appraisal is made more credible by the April composite index of 10
leading indicators, which came in at 114.7, the highest since May 2008. Moreover,
output is on the rise, consumer confidence is strengthening, the stock market has
regained much of its pre-crisis momentum, and the foreign exchange rates have
become stable.
The administration does not dispute the governor's assessment that the economy is
recovering. Instead, it is worried about the possibility that the momentum the
domestic economy appears to be gaining at the moment will fizzle out during the
second half. It says it is very much concerned about the rapidly rising prices of
oil and other commodities as a source of instability.
In these times of economic uncertainty, the administration has much to learn from
private enterprises, many of which make adjustments to their year-long business
plans by the month or the quarter. It may have to establish one main economic
management plan for the second half and a couple of contingency plans to fall
back on in the event of a sudden downturn.
A crucial test will come near the end of July when the figures for second-quarter
economic performance will be available. According to preliminary ballpark
estimates by both public and private think tanks, growth in gross domestic
product is assumed to be hovering between 1 percent and 2 percent.
But some say they cannot rule out the possibility of the GDP growth rate
surpassing the 2 percent mark. If that possibility should turn out to be a
reality, the administration will have to start moderating debt-financed fiscal
spending immediately.
The sooner a fiscal discipline recovers, the better it will be for the nation,
whose debt is growing at an alarming rate. National debt as a percentage of GDP,
standing at 33.6 percent last year, is projected to reach 51.8 percent by 2014.
(END)