Exports and domestic consumption are fraying unexpectedly fast. Bad corporate management has left financial firms with no place to pile up their bad loans. This has left people feeling frustrated. Their concerns about the financial soundness of banks have increased but there has been little progress with restructuring.

When the economy slides into a downturn, economic strength becomes about trust in the government and its policies. The government should present a strategy for reviving the economy that has a clear set of guidelines and plans for implementation, and is based on an accurate diagnosis of the current situation. While it is not possible to change the global financial storm, local economic players would have trust in the government if its economic team were to make its best efforts without fumbling so much. Announcing his economic team yesterday, U.S. President-elect Barack Obama focused on instilling trust in his administration. “We don’t have a minute to waste,” he said. By asking his economic team to develop recommendations for a recovery plan for both middle-class households and the markets, Obama sent the clear message that he will work revive the U.S. economy. “That work starts today,” he said.

In fact, it’s nothing new for our economic team to be struggling for credibility and it would not be an exaggeration to say that President Lee Myung-bak is at the top of that. In a meeting with Korean residents in Los Angeles a few days ago, President Lee said, “I’ve been thinking that if (people) buy stock now, they’ll get rich in less than a year.” Of course, the remark was seen as Lee’s intention to encourage the Korean residents and give them the belief that the economic crisis will be overcome. But it was inappropriate for him to predict that stock prices would rebound. It undermines his dignity and could spark confusion in the markets. About two months ago, President Lee caused a brouhaha because mutual fund yields plunged after he publicly said he would buy such funds.

President Lee himself has said that the current economic turbulence has resulted in an unprecedented crisis. Even though he may want to speak of hope in these difficult times, he should stop voicing what amounts to groundless optimism. His economic aides also need to ponder whether the president’s uncensored comments are helping the economy at a time when they are making a major effort to deal with the situation.

A recent comment by President Lee in which he said the capital adequacy ratio, which is under guidelines set by the Bank for International Settlements, should be eased is likely to heighten the moral hazard at banks. Easing the capital adequacy ratio will do little to help the financial soundness of banks because they are struggling with reckless management and unregulated loans. The government’s timidity about restructuring banks and major corporations is cited as one of the factors perpetuating the vicious cycle in which the financial crisis squeezes the real economy and that in turn reinforces the financial turmoil. The most important thing for him to do now is to lay out a precise plan that will be implemented with a clear set of principles, not empty words that are out of touch with reality.

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