(EDITORIAL from Korea Times on June 22)

최경애 / 2022-06-22 06:54:32
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(EDITORIAL from Korea Times on June 22)

Looming economic woes

People taking the brunt of triple shocks

The deteriorating economic and financial situation can be compared to an approaching perfect storm. People have already begun to bear the brunt of triple shocks ― runaway inflation, higher interest rates, and the weakening local currency. Their pains are likely to become acuter as the economic outlook is getting bleaker amid concerns about a global recession.

No indicator can better reflect the hardship than the so-called misery index which jumped to 8.4 last month, the highest figure for any May in the last 21 years. The index is calculated by adding the consumer inflation rate (5.4 percent) to the unemployment rate (3 percent). The higher inflation rate was attributed to the Russian war in Ukraine which has caused a steep rise in energy and food prices coupled with global supply chain disruptions. Global monetary tightening is adding fuel to the fire.

The U.S Federal Reserve is expected to take a more aggressive stance after raising its benchmark interest rate by 75 basis points last week. This will put more pressure on the Bank of Korea (BOK) to follow suit after it hiked its key rate five times to 1.75 percent since last August. Thus, it will be inevitable for borrowers to shoulder a greater interest payment burden.

The rapid depreciation of the Korean won against the U.S. dollar is also another cause for concern. Consumers are forced to endure the rising cost of living as the country has to pay more for imported goods and materials due to the weakening won.

People's excruciating pain was summed up in words uttered by President Yoon Suk-yeol. "The people are holding on to their last breath," Yoon said Monday. He instructed officials to come up with measures to protect the poor and vulnerable from deepening economic and financial difficulties.

The instruction came after the cost of living index shot up by 6.7 percent in May, much higher than the overall inflation rate. The mortgage interest rates have also surged to as high as 7 percent. Financial authorities need to persuade banks to cut their interest margins to help financially-strapped debtors ease their interest payment burdens.

Most of all, the government should take proper steps to reduce the household debt which totaled 1,859 trillion won ($1.4 trillion) in March. The debt, which accounts for 104.3 percent of the country's GDP, has emerged as a ticking financial bomb. A possible burst of asset bubbles could lead to a financial system meltdown and an economic crisis.

Yet, preventing such woes is easier said than done. On Sunday, the government decided to cut the fuel tax by 37 percent, higher than the current 30 percent. However, the additional cut is not sufficient at all to curb inflation. That's why the finance ministry plans to cut the maximum corporate tax rate to 22 percent from 25 percent and push for deregulation to revitalize the economy.

But the Yoon administration finds it difficult to get approval from the National Assembly for such measures. The Assembly is in limbo due to the political deadlock between the ruling People Power Party (PPP) and the main opposition Democratic Party of Korea (DPK). We urge the rival parties to move toward bipartisanship to prevent a brewing economic and financial crisis.


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