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Preemptive measures required for impact on financial market and anti-free trade

Preemptive measures required for impact on financial market and anti-free trade

Posted June. 27, 2016 07:19,   

Updated June. 27, 2016 07:33

한국어

When the majority of British public voted for Brexit, the impact hit the world’s financial market over the weekend. Asia’s stock markets were hit on Friday followed by the stock markets in Europe and the U.S., resulting in a plunge of the total amount of world’s market price by 2 trillion dollars (approx. 2.34 quadrillion won, twice as much as Korea’s GDP). The heads of the 30 major central banks around the world made urgent speeches and agreed to cooperate with others in the BIS Annual Conference held in Basel, Swiss on Saturday, but that their effort is expected to be not that effective. As the global stock market and foreign-exchange market will open today, the pressing issue is whether the same impact will hit us as what Black Friday brought.

The WTO reported that the G20 countries implemented 145 protectionist trade measures from October last year to last month, which is the second fastest expansion of protectionism after the 2008 financial crisis. Brexit does not mean the UK will reject free trade, but it certainly did accelerate the recent expansion of protectionism. US presidential candidate Donald Trump also seems to favor protectionism against the world’s trend. Having been successful with its export-led economic growth, Korea is now also facing serious trouble as the global economy is changing.

Korea’s biggest concern is that foreign capital invested in Korea will be extracted rapidly, leaving the stock and foreign exchange markets unstable. The Korean government needs to take safety measures such as the prohibition of public stock trade and alleviation of treasury stock purchase. Currency swap agreements with major countries such as the U.S. and Japan should be pushed forward again, and stress tests should be re-conducted on industries subject to restructuring such as shipbuilding and shipping. Some products’ prices have increased in the export market as the yen has been strengthened. In the backdrop of Brexit on top of the prolonged depression, urgent reflation measures such as supplementary budget revision are required immediately.

In a meeting on macroeconomics and finance on June 16, Choi Sang-mok, first vice minister of Strategy and Finance, made an optimistic statement, saying, “As Korea and the UK do not share strong financial and trade links, Brexit’s impact on the Korean economy will not be significant.” On the other hand, Japanese Prime Minister Shinzo Abe held an emergency meeting with officials from economic-related ministries on Friday, as the yen’s value rose sharply and the Nikkei’s stock price nosedived. The Korean government should ask itself if it has not been too complacent. The government must take follow-up measures in preparation of anti-free trade expansion. Politicians, regardless of their affiliation, also need to show some responsibilities by cooperating with the government in tackling this economic crisis.



권순활논설위원 shkwon@donga.com