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Some experts cite freeze as evidence stimulus is still needed
December 02, 2009
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| Concerns over the fragility of the global financial recovery have resurfaced in the wake of a payment freeze in Dubai, and some experts are using the renewed uncertainty as fuel for their arguments that emergency measures instituted in the aftermath of the global downturn should continue. According to local authorities yesterday, the government is already considering delaying an exit strategy for Korea. The Financial Supervisory Service said it may extend its fast-track liquidity provision program by six more months to June 2010. “Given the economic situation and uncertainty in the global financial system, we think we need to extend this program further,” said an official at the FSS who declined to be named. “We are talking with the Financial Services Commission and other related agencies about this.” The fast-track liquidity provision program was launched in October 2008 on the heels of the collapse of Lehman Brothers. The program is aimed at providing credit guarantees to small and midsized companies unable to secure bank loans. It was initially scheduled to expire in June but was extended to December. But news that Dubai is rescheduling debt on its property projects last week has not yet provoked an extreme reaction here, with the local stock index and the won rising Monday and yesterday. The Kospi increased 0.9 percent to 1,569.72 points, while the local currency strengthened against the U.S. dollar by 1.70 won to close at 1,161.10 won. On Friday, the Kospi fell 4.7 percent, with the won hitting a four-month low. Still, government officials say the Dubai affair has reminded them how vulnerable small, open economies like Korea’s are to shocks in the global financial system. Andy Xie, a former chief economist for Morgan Stanley, warned yesterday at a local conference that another crisis could hit the global financial market in two years. “It takes time for the job market to expand and uncertainty in the international financial market lingers, so we plan to keep front-loading the budget next year,” Assistant Finance Minister Noh Dae-rae was quoted as saying by Yonhap. “The government has yet to discuss exit strategies officially, and we can’t take the risk [of implementing one now] given the situation.” The office of the president is on alert monitoring the situation in Dubai, and may keep the “economic war room,” a venue for emergency cabinet meetings at the Blue House, in place through the first half of next year, sources said. By Moon Gwang-lip [joe@joongang.co.kr] JoongAng daily Hot issue
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