Facing an Inflection Point

Korea experienced the financial crisis before and knows well what is like to go though the IMF austerity program. The global macroeconomic environments in which the Korean economy is are worse than during the 1997 financial crisis.

Korea is heavily export-dependent, so its economy can’t decouple from the global economic conditions. The U.S. and the Europe are Korea’s major trading partners, and they are imploding. In the near term, a slowing Chinese economy could also have ramifications for Korea. Although Korean corporations have successfully made expansion into new markets, Korea wouldn’t seem to be immune to the worldwide credit bubble (or, debt bubble bursting) and a global capacity glut.

Much like the rest of the industrialized nations, the Korean government has injected stimulus into their economy. Korea has created a bubble as well. They may see it popping at some point as the rest of the developed nations is seeing. When global stock markets along with bond markets tank down the road, which many predict is an inevitable scenario, Korea (or other Asian countries for that matter) may have to deal with contracting exports and capital flight.

Korea has a lot going for it. And yet, it needs to keep a competitive structure to make a productive economy function and balance the budget. Korea needs to care about the debt load, as many parts of the world face sovereign debt problems. While corporations’ balance sheet has got healthier since the 1997 financial crisis, there are concerns over the sovereign and household debts. Innovation and production are at the crux of keeping the economy sustainable. Productive labor should be valued, jobs created in the private sector, and the wealth gap narrowed as the cases of advanced countries have shown. The overall health of the economy is the product of several forces working in a coordinated fashion.