(EDITORIAL from the Korea Times on Oct. 3)

Aftermath of crisis
Shock wave has yet to reach real economy

The U.S. Senate's passage of an economic bailout plan Wednesday is spreading a relieved sense that the worst may soon be over.

With the House of Representatives seen to follow the suit of the upper chamber,
the American financial system is likely to avoid a breakdown, which, if happened,
could have thrown not just the U.S. but many other economies into chaos. The
crisis, however, is far from over and its effects will vary widely depending on
how governments cope with the aftermath.
Korea is no exception, and is experiencing difficulty in both its financial and
economic operations. Worryingly noticeable is the rapid decline in the nation's
foreign exchange reserves, which has already touched off a hot debate on its
proper level.
The Bank of Korea said yesterday Korea's foreign reserves have dwindled $22.5
billion this year to $239.6 billion. This heavy loss in forex reserves is due
mainly to Seoul's hasty ??? and largely ineffective ??? intervention into the
currency markets, which have taken a roller coaster ride since the global
financial system has shown signs of instability.
Market players say the Korean won is almost the worst-performing currency among
major monetary units, remaining as the sole foreign currency to have shown
weakness even against the falling greenback.
The financial authorities express optimism to supply sufficient foreign exchange
liquidity and stem the further fall of the local currency with their "ample
ammunition." Financial experts say, however, such complacency is very dangerous
in a financially uncertain period like this, saying it is time to accumulate ???
not draw from ??? forex reserves. What's important is how much of the reserves
can be turned into cash upon demand, and even the U.S. treasury bond, long
regarded as the world's safest security and accounts for nearly half of Korea's
foreign reserves, may prove to be no longer safe, wreaking havoc on Korea's
capacity to cope with a liquidity crisis.
All this, however, failed to deter President Lee Myung-bak from strongly
endorsing his economic team for "minimizing the impact of the U.S. financial
crisis on the domestic markets by taking preemptive countermeasures." Lee might
be pointing to the relatively stable stock market on the morning after the U.S.
House's initial rejection of the rescue plan, but nothing could be further from
the sentiments of numerous businesses suffering from credit crunch and parents
with children studying in America. The President might have found a good excuse
to "rescue" his finance minister, who has long been under pressure to step down
from opposition parties for his ineptness and recalcitrance.
Seoul may be one of the few ??? if not the only ??? governments which projected
next year's economic growth to be higher than this year's. Some increase in
governmental outlay may be necessary to prevent the economy from falling further
into a slump, but officials should take extreme caution not to allow it to cause
a dangerous fiscal deficit and sharp increase in national debts.
The global economic trend, and the domestic situation as shown by the record
current-account deficit in August, are forcing all economic players ??? the
government, business and people - to brace for another economic slowdown and
tighten their belts even before they see the long-awaited recovery.
Most important is popular trust in the government's policymakers, which cannot be
earned by self-praise or an ostensible show of confidence but by a cool-headed
approach based on long-term prospects.
(END)