(EDITORIAL from the Korea Herald on Oct. 10) - A call for composure

yonhap - The nation is being dragged into the greatest financial upheaval since the 1997-98 financial crisis.

The stock market has tumbled and the won has been in a free-fall. It should come as no surprise if individual investors, households and
corporations resort to panic. Many wonder if the nation will be able to curtail
the economic slide and start a recovery any time soon or if we will lose control,
plunging Korea into a financial disaster of the sort we have not seen in a
decade.
But President Lee Myung-bak and his economic policymakers are advising calm to
all market players, ruling out the possibility the nation is sliding into a
financial crisis similar in magnitude to the one that originated in Thailand and
dealt a devastating blow to Korea and some other Asian economies in 1997. As
evidence, they present a litany of differences between the current and previous
crises.
Indeed, there are more differences than similarities. Most notable among the
differences are the nation's foreign exchange reserves and short-term debts. At
the end of September, the nation had $239.7 billion in its foreign exchange
reserves, 12 times the amount it had at the end of 1997.
The high level of foreign exchange reserves, the sixth largest in the world,
helps relieve the nation of much of the debt-servicing pressure. Though
short-term foreign debt increased from $63.8 billion at the end of 1997 to $175.5
billion now, the current reserves-to-debt ratio is adequate, so debt servicing
should pose no serious problem.
Moreover, Korea Inc. is much stronger now than before. It is not just financial
institutions but manufacturers and service providers that have become leaner
through restructuring and consolidation. They are better prepared to withstand
financial maelstroms.
A significant problem for Korea to overcome is the simultaneous blow of global
financial turmoil along with a dollar shortage. The nation posted a cumulative
current account deficit of $12.6 billion in the January-August period, compared
with a surplus of $498.2 million in 2007. No wonder the won's fall has been so
swift against the U.S. dollar.
The dollar shortage, however, should be easing soon. The current account, which
is estimated to have sustained a deficit of $1 billion last month after a record
high of $4.71 billion the previous month, will produce surpluses, beginning this
month, the government says. The cited reason is that falling oil prices are
cutting import bills and the weak won is spurring exports.
But the government will have to guard itself from being overly optimistic and
take great care in making remarks on the state of economic affairs. Otherwise,
the public will lose confidence in its policy.
A case in point is a remark President Lee made during his visit to Russia late
last month. He said, "The (global) financial crisis has a relatively smaller
impact on Korea than on other countries because it has preemptively responded to
it."
On Monday, he said he was confident the Korean economy would overcome the crisis
and get back on track before any other country. But he made no effort to
corroborate his claim with data. To his chagrin, the domestic financial markets
took a drubbing after he made the remark.
Even more careless is Finance Minister Kang Man-soo, who urged domestic
commercial banks on Monday to quickly dispose of their overseas assets. His
remark raised banks' concern over a shortage of foreign currencies, spurring a
greater demand for dollars.
It is not just individual investors, households and corporations that need to
maintain composure. The government needs greater self-control in dealing with the
crisis. It should make measured remarks after careful inter-agency policy
coordination.
(END)