To get prepared

(EDITORIAL from the Korea Herald on Sept. 17)
A major economic and financial crisis is looming, due to a combination of domestic and overseas factors, and all players need to make a concerted effort to prepare for adversities. But what we are witnessing in political and bureaucratic circles is not quite reassuring.

The news of turmoil on Wall Street, involving the bankruptcy of Lehman Brothers
and the sale of Merrill Lynch, hit Seoul on Monday while the financial market and
government offices were still closed for Chuseok. As leaders of the Strategy and
Finance Ministry, the Financial Services Commission and the Bank of Korea held an
emergency meeting yesterday, the stock market reacted wildly to the news from the
United States.

It is reported that Korean firms have invested over $1.4 billion in bonds and
derivatives of the two U.S. investment banks. Regardless of the value of Korean
investment through the two top-five U.S. banks, the Wall Street shake-up --
coming immediately after the U.S. government rescue of mortgage firms Fannie Mae
and Freddie Mac -- could bring devastation to the Asian financial markets, with
an expected aggravation of the global credit crunch.

The local financial market has just got over its jitters about a widely
speculated "September crisis," which was based, quite inaccurately, on
anticipated recovery of short-term foreign loans here. The government's economic
team, consisting of President Lee's new recruits and some retained from the
previous administration was unable to effectively cope with the largely
groundless predictions until the market itself proved them wrong.

Even before the bad news from New York on Monday, the general decline of U.S. and
European markets and signs of a post-Olympics slowdown in the Chinese economy
were already huge concerns for Korea's economic authorities. Their efforts to
stimulate the economy with a supplementary budget met a serious setback last week
at the National Assembly, dominated by the ruling party.

The 4.26 trillion won additional budget bill passed the Budget Committee on
Friday but the procedure was nullified because of a lack of quorum in the
50-member special panel. Seven out of the 29 ruling Grand National Party members
in the committee failed to show up to the crucial session, as they were already
out of town. Members of the main opposition Democratic Party boycotted the budget
session.

The supplementary budget was aimed at halting inflation. A major part of it was
to subsidize public utility firms to keep them from raising their service charges
and to arrest the rate of inflation at a little over 5 percent for the rest of
the year.

Huge household debts totaling 622 trillion won, or an average of 40 million won
per family, continue to drag on the economy, subduing consumption. Meanwhile, the
construction business is faltering under slow sales of newly-built apartments
across the country, another factor threatening the basis of the nation's economy.
President Lee's decision to lift various regulations on urban redevelopment would
take considerable time to bring practical benefits to builders.

Facing all these troubles, the "business-friendly" administration has
yet to secure the market's trust. Wobbling foreign exchange policies during the
early months harmed government credibility and, most recently, the botched plan
to issue $1 billion worth of government bonds in New York raised doubts about the
judgment of our finance officials.

Wall Street is posing real challenges to the nation's financial business
operations, an area in which the government has plenty of room to act. It is time
for our financial authorities to prove their dedication and capability by
tackling domestic and foreign-based problems in a way that restores the
confidence of the market first.

(END)