Kim Yong-beom, head of the Presidential Office of Policy, said on Facebook on Tuesday that "high interest rates, high inflation, and a high exchange rate are unavoidable costs of success that accompany the Korean economy as it leaps to a new dimension." He argued that "confusion arises when the friction of this leap is misread as a crisis signal."
Kim characterized the won's weakness, which has approached 1,520 won per dollar, as a "paradox of success" stemming from foreign investors cashing in valuation gains from the KOSPI's sharp rise. He pointed to real estate as the area requiring the most resolute response, announcing a parallel approach of structural demand management and supply policy. On interest rates and inflation, he said the government would manage the pace of increases and volatility.
Kim's diagnosis that the Korean economy has entered a new growth phase, led by semiconductors, is reasonable. However, there is room to question whether this can be directly linked to a virtuous cycle of rising incomes, expanding tax revenues, and a declining national debt-to-GDP ratio. Above all, the reality of worsening economic polarization should not be taken lightly, with export concentration deepening to the point that the top five companies, including Samsung Electronics and SK hynix, accounted for 43.5% of total exports in the first quarter of this year, while income gaps have also widened. The average monthly wage for regular workers at electronics-industry workplaces with 300 or more employees stood at 9.42 million won, while temporary and daily workers at workplaces with fewer than 300 employees earned just 1.76 million won. While increased corporate tax revenue may help fiscal soundness, it is premature to conclude on this basis that a virtuous cycle has taken hold across the economy.
The Ministry of Finance and Economy even used the phrase "V-shaped rebound" in promoting the economic achievements of the People's Sovereignty Government's first year. Looking only at growth, KOSPI, and export indicators, this carries some persuasive weight. But the economic conditions felt by ordinary citizens must be confronted directly. Companies facing the burden of a high exchange rate and high oil prices are bracing for the possibility of interest rate hikes, and the youth unemployment rate in the first quarter of this year reached 7.4%, the highest level in five years. Household debt is on the verge of surpassing 2,000 trillion won.
It would be fortunate if the current turmoil indeed reflects the friction of a leap forward being mistaken for a crisis signal. But if it instead reflects an overlooked warning being diagnosed too optimistically, problems could follow. Rather than concluding that the economy's overall fundamentals have improved based solely on better macro indicators, it is time to concentrate policy capacity on restoring the economy felt by citizens and easing polarization. A sustainable leap for the economy is possible only on the foundation of a cool-headed, balanced diagnosis and strong policy execution.
