The South Korean economy is rapidly sinking into a state of crisis. In particular, a severe shortage of U.S. dollars has led the won-dollar exchange rate to rise almost 60 won per dollar and exceed the 1,300 won mark on October 7. The time to argue about whether there is a crisis or not has passed. It is now time to gather wisdom about how to surmount the difficulties that lie ahead of us.

The most important thing is the government’s ability to respond to the crisis. While this crisis may have originated from the global financial crisis, its influence has appeared in different ways depending on the government’s method of response. Despite the global financial crisis, the Japanese yen is showing a bullish tendency, while Iceland is facing national bankruptcy. The Lee Myung-bak administration is now facing a real test.

Ahead of any specific plan of response to the crisis, what must be established is confidence in the government. Market confidence in the Lee Myung-bak administration, and Kang Man-soo’s economic team in particular, has long since evaporated. Not only is nothing they say accepted in the market, the market even misinterprets the intentions of their statements, leading to greater shock. In order to restore market confidence, the government must first demonstrate its authenticity, showing that it is mobilizing all of its means to respond to the crisis. Confidence is not restored simply by operating contingency plans of crisis response and having emergency meetings at Cheong Wa Dae. Who will believe the government when the administration and ruling party are going on about lost decades and crying about old-style “leftist purges,” while the president comforts Kang’s economic team by saying how government authorities seem to be fighting hard?

It is also urgent that an effective crisis response system be established. The current system is insufficient to handle the crisis that is unfolding so acutely. Financial policy as well is split between the Ministry of Strategy and Finance and the finance committee, while the position of the Cheong Wa Dae economic office remains uneasy. What is needed in a crisis situation is an organization for emergency countermeasures that can collect all types of on-site information in one place and conduct comprehensive analyses and determinations using that information so that it can hand down a final decision. Now is the time for that.

All of these things are ultimately a mere precondition for the resolution of the severe liquidity problem with foreign currency. The government must carry out a preemptive response based on precise information about the real situation of the foreign currency funds of financial companies and enterprises before things reach a worst-case scenario. If they wait to get the situation under control after things erupt, they will end up in a situation where no measures are available. They must even consider a plan of directly supplying foreign reserves at some point to financial companies or enterprises if necessary.

Plans for securing the dollar through international cooperation should also be actively considered. The formation of an Asian common fund, while correct in its intent, is not a plan that allows effects to be seen right away. It is vital that an immediate and effective plan for securing the dollar be established to control this urgent situation. It will not do to stay with the same methods of borrowing fresh foreign currency funds and selling off overseas foreign assets. It is a time when a shift in thinking is needed.

That said, not everything can be placed on the government’s shoulders. No matter how right the policy the government produces might be, it is in vain if the market does not believe and follow it. Market participants act in an “every man for himself” manner, and this ultimately leads to a situation of everyone going down together. Banks, enterprises and all other economic entities must react as prudently as possible to the market fluctuations. It is the time for us to share an awareness that others must survive for us to live.

Please direct questions or comments to [englishhani@hani.co.kr]