Corporate activity, confidence key to recovery

SEOGWIPO, Jeju -- Survival of Korean companies will depend on how well-prepared they are for the aftermath of the current global economic crisis, and how they make opportunities out of emerging economies like China and India, experts said yesterday.

"Korea needs to have an exit plan that will help it come out stronger from the crisis and make an impact in the global market, and this will depend on how well-prepared our industries are coming out of the crisis, as well as how they take advantage of fast-growing emerging economies," said Kim Ju-hyun, chief executive officer of Hyundai Research Institute. He spoke on "seeking a new way of living for the Korean economy and enterprises."

Kim and other experts have been stressing that increasing corporate investment is key to reviving the economy.



Data provided by the Hyundai Research Institute show that Korea`s economic growth potential plunged to 4.5 percent coming into 2000 from an average of 8.7 percent in the 1980s and 6.6 percent in the 1990s. It showed that the decline in potential growth rate will lead to stagnant growth.

Kim noted that Korea`s economic growth rate began falling below the global growth rate in 2003, when the country`s growth rate hit 2.8 percent, while the global economy expanded 3.6 percent. In 2008, the globally economy expanded 3.2 percent, while Korea achieved only 2.2 percent.

"Our economic growth potential is waning and this is a worry, as growth is stagnant at this point; therefore, corporate investment is important and is a key to invigorating growth, as it would help create jobs and raise competitiveness of companies and boost growth," Kim said. He stressed that "Korea`s efforts between 1995 and 2009 have been somewhat futile as they did not result in effective fruits of labor."

In addition to fostering a stable economic foundation, Kim cited the need for developing new growth engines.

"The challenge here, however, is how we`ll find these engines, and in the case of new green industries, how companies will come up with new ideas and develop them," he added.

Sustainable growth all comes down to corporate investment. Experts have raised greater challenges for Korea compared to its major Asian neighbors as it sits "sandwiched" between Japan and China. Japan stands as the world`s second-largest economy, while China was the third as of 2008, according to the International Monetary Fund. Korea faces the challenge of competing with Japan in technological competitiveness and with China in offering competitive prices.

Sohn Sung-won, an economics professor at California State University, said the answers to spurring corporate investment are resuscitating the economy and putting the economy on a path of sustainable growt.

"Low interest rates and tax incentives and other government measures aimed at encouraging corporate investment are futile if businesses don`t have confidence in the economy, because they also need to ensure they will reap benefits from their investments," Sohn explained. "People need to believe that recovery is sustainable."

The economist also highlighted confidence in Korea`s bright outlook, as projected by the Organization for Economic Cooperation and Development. An OECD report released in early June said that Korea`s economy has already bottomed out and is expected to recover the fastest out of the world`s major countries. It pointed to expanding output and other indicators that show signs of stabilization.

Sohn advised the Korean government to continue with its stimulus measures and ensure low interest rates and financial liquidity until recovery is certain. He cited a 20 to 30 percent chance of a double-dip recession.

"The government shouldn`t worry about inflation, that worry should be faced when it comes, because when it does come down to having to worry about inflation, then it means the economic stimulus measures have had an impact," he told reporters on the sidelines of the forum.

The expert forecast Korea`s economy to contract 0.8 percent in 2008 and 1.8 percent in 2009, while achieving 2.5 percent growth in 2010. He also warned against global trade protectionism and stressed that raising trade volume is important for all trading nations, as opposed to being fixed on posting an account surplus.

"All nations may think recording a surplus is better, but this means a drop in trade volume," added the economics guru, who was ranked as among the top five most accurate economic forecasters in 2001 by Bloomberg News.

As a long-term survival strategy, Sohn advised the Korean government to step up its investor relations activities. He suggested this could call for the Korean president, ministers and other government officials to actively provide comprehensive and detailed information about the country -- not just the good but also the weak points.

"This would help raise understanding. And better understanding of the country would help boost foreign investments and lower Korea`s credit default swap risk claim with the United States, which can be seen as five times higher," Sohn noted. "Improving investor relations would help raise the national brand," he stressed, suggesting that an improved image would lower economic risks as it would foster trust in the nation, while helping to strengthen the competitiveness of Korean goods.

He also cited the country`s high dependency on exports as a major economic risk.

Sohn was a senior economist on the President`s Council of Economic Advisors during the Nixon administration, where he managed the economic and legislative matters related to the Federal Reserve and financial markets.

Kim also mentioned that building the nation`s brand value would help Korea recover and come out stronger in the unprecedented crisis.

"Asian value is quickly spreading across the world with the quickly growing economies of India and China, therefore Korea needs to consider how it wants to show its value," Kim said.

He noted that Korea`s global competitiveness dropped to 27th in 2009 from 26th in 1995.

An estimated 400 entrepreneurs representing Korean companies have gathered on Jeju Island for the 34th annual forum hosted by the Korea Chamber of Commerce and Industry under the theme "New Economic and Corporate Solutions in the Global Economic Crisis Era." Participants are exploring ways to weather the crisis and sustain corporate growth throughout the four-day seminar that began on Wednesday. (sohjung@heraldm.com)



By Yoo Soh-jung