Won vs. yen

Will ‘Geunhyenomics’ be able to get over ‘Abenomics’?

“Japan Inc. is coming back at the expense of Korea Inc.” So went the headline of a Bloomberg news story Monday, which described the revival of Japanese auto and electronics makers riding on a weak yen in contrast to their Korean counterparts reeling under a strong won.

Japan’s beggar-thy-neighbor monetary expansion has become the target of global complaints but nowhere else are its impacts being felt more keenly than in its nearest neighbor.

Korea has long been sandwiched between high-tech Japan and low-cost China. Now the new buzzword among economic commentators here is the “reversed sandwich” theory, in which Korean manufacturing firms are caught in a nut cracker between newly high-tech Chinese competitors and relatively lower-priced Japanese rivals.

“Abenomics” ― the three-pronged economic policy of Japanese Prime Minister Shinzo Abe aimed at reviving his country’s moribund economy through monetary, fiscal and structural remedies ― will push the value of the Japanese currency down further, triggering competitive devaluations of major monetary units throughout the world and opening a currency war of epic proportions in the worst-case scenario.

What should Korea Inc. and its new skipper, President-elect Park Geun-hye, do to tide over these increasingly rough waters of global economy?

Park’s economic policy, or “Geunhyenomics,” is mainly directed inward, providing better social safety nets and ensuring fairer redistribution. She is basically going in the right direction, but needs to supplement her economic blueprint with proper external policies focusing on how to maintain and strengthen the Korean industry’s international competitive edge and protect the nation’s relatively small and unduly open economy from impacts from abroad.

In the short run, Park should try to put on a brake, through international cooperation, on Japan’s unabashed acceleration of money supply, to minimize foreign exchange losses in Korean firms, especially smaller ones, while introducing various devices to control capital flow in and out of the country. In the medium term, time-honored measures such as helping firms sharpen their price and technological competitiveness through active R&D supports should also continue. In the long run, however, Korea should face the attack head on ― let its currency go up.

The nation should be ready to follow the path Japan has already taken by retaining, even sharpening its industrial competitiveness amid the won’s appreciation. And Park should push ahead with her shift of policy focus from large exporters to their small suppliers in this regard. As Germany and Japan, the world’s two manufacturing giants, have demonstrated so successfully, the key lies in small but strong companies. Another keyword is diversification, of export items and markets as well as turning out products with varied price ranges. In the process, the Korean economy should restore balance between exports and domestic demand.

These are daunting tasks, but are only part of the enormous challenges, political and economic, coming from within and without, the new President should tackle. Park has no time to become mired in petty domestic politics but instead chart Korea’s course ahead as far as the eye can see. <The Korea Times>