Report says economic crisis possible

Despite the instability of the financial market in the first half of this year, with the real economy showing a favorable trend, the Korean economy has been able to remain above water. However, should things take a downward turn, the financial market instability could lead to economic anxiety, which could in turn lead to a great possibility of economic crisis, according to a report issued by the Samsung Economic Research Institute on Wednesday titled "Ten Prescriptions for the Current Economic State of Korea."

Adding to the loss of full functionality by investment companies and short-term lenders, who were the secondary mainstay of corporate lending, banks have tightened lending to corporations, as the banks themselves are waiting for the second phase of financial reform.

With the procurement of funds by companies at a dead-end, there has been an increase in the number of non-viable companies, and even conglomerates have been driven to crises due to lack of liquidity. As a result, the stock market has nose-dived, and the financial market has worsened. Normalization at the companies where the workers had gone on strikes has been delayed and there are great number of companies with unstable financial structures.

According to an investigation by Bank of Korea, of the companies at the production level that are audited by external parties, 25% of them are having trouble obtaining fresh loans. If the aftershock of the second-phase financial reform leads to a freeze in the money market, aside from the very few excellent companies, many would not even be around for the business structural reform.

Korea¡¯s trade deficit has been worsening, with the percentage of short-term loans increasing. As the only sector still enjoying a boom localized to the semiconductor and information-technology fields, the bipolarity also has worsened. Many of the midsized companies in the construction field or those that meet domestic consumption and those based in the outer regions away from Seoul, are in danger of complete disintegration. Venture stocks that at one time were considered "don¡¯t-ask-but-buy" grade have not become "don`t-ask-but-sell."

Reform in the public sector lacks any visible signs of improvement, and social discord has reached crisis level. Although the expectations concerning South-North collaboration stand high, for any visible signs of actual cooperation, a great deal of time is required. If the economic outlook darkens at this point in time, the financial instability could lead to economic instability and crisis.

The government must place a higher priority on crisis management. They first must decide the priorities of the financial and business reform, as well as the inter-Korea commercial accord. The government must not make the mistake of pursuing a simultaneous reform of both the business and financial institutions, which could lead to a further vicious cycle of crisis in the businesses and the financial institutions.

Through a successful negotiation of the medical reform, the government must deal with the social discord and regain the trust of the nation and must reign in the laxity pervading throughout the society.