Korea: Think tanks downbeat about postwar economy

Read more... By Yoo Cheong-mo cmyoo@koreaherald.co.krStaff reporter 2003.03.25 A quick and decisive end to the war in Iraq may not lead to an immediate rebound of the Korean economy, local think tanks warned yesterday, guarding against budding post-war optimism.

The Korea Development Institute (KDI), the Samsung Economic Research Institute (SERI), the Korean Economic Research Institute (KERI) and two other leading think tanks said that despite a possibly early ending of the war, the North Korean nuclear standoff and domestic labor disputes sitll pose serious obstacles to the nation's economic recovery.

Further deterioration of North Korea's economy and additional local labor confrontations could scare away foreign investors and lower the nation's economic growth rate as low as 3 percent this year, said senior economists at the five institutes. In particular, they expressed fears that President Roh Moo-hyun government's labor-friendly policies will likely antagonize foreign investors, as well as local employers.

"North Korea's nuclear problem is the biggest concern for foreign investors interested in the South Korean market," said Shim Sang-dal, a senior fellow at the KDI, calling for more fundamental measures to ease market jitters. "In addition to the strengthening of an alliance with the United States, the Korean government is supposed to explain the North Korean issues to the global community through regular overseas roadshows," said Shim.

SERI also warned that an annual economic growth rate of 4 percent may not be attainable this year, as long as the specter of North Korean concerns loom over the Peninsula, and further dampen the possibility of a recovery in consumption and investment. "Due to the North Korea factor, the current economic situation is far worse than in the 1997 economic crisis," said a Samsung economist, calling for the government's stimulus measures.

Huh Chan-kook, a senior economist at the KERI, also warned about possible surge in oil prices, saying that a number of factors, including the Iraqi war and a walkout crisis in Venezuela, could prevent oil prices from falling below $20 a barrel.

Economists at the Hyundai Research Institute said that policy consistency by the Roh government would be vital to the continued inflow of foreign investments, while the LG Economic Research Institute cautioned that this year's economic growth would tumble to the 3 percent level.

"Even a short conflict in Iraq may fail to rescue the U.S. economy from a slump," said a SERI economist who called for governmental stimulus measures.