The economic policy of President Lee Myung-bak’s administration sounded more convincing than before when it revised its 2011 economic outlook on Thursday. It lowered its growth target from 5 percent to 4.5 percent and raised its inflation outlook from 3 percent to 4 percent. Simply put, it abandoned its vaunted growth-first policy.
Prior to revising its economic management plan for the second half of this year, it had obstinately held that the increase in consumer prices would be curbed at around 3 percent when the economy grew 5 percent, as projected at the outset of this year. It had done so, ignoring a steep rise in the consumer price index, which had already broken through the 4 percent mark.
But the administration had no other choice than to sacrifice growth in favor of more stable prices, with the consumer price index remaining above the 4 percent level for the six consecutive months this year. It was urgent to curb mounting inflationary expectations. Moreover, public discontent was rising against the administration, which had earlier promised to focus on the welfare of households the middle- and lower-income brackets, instead of maintaining a business-friendly policy.
Inflation control is easier said than done. Of course, the administration promises to curb increases in the prices under its control to a tolerable level ― public utilities and service charges, such as the prices of electricity and tap water and public transportation fares. The administration is also resorting to arm-twisting tactics to push down gasoline and other prices. These efforts may yield seemingly good results for a while.
But the problem is that inflationary pressure will continue to build unless the promise to keep consumer prices under control is backed up by a shift in monetary and fiscal policy. In other words, the central bank will have to raise its benchmark rate and the administration will have to curb spending on welfare and other programs.
The resetting of priorities in economic policy demands that consumers tighten their belts. This unpopular policy is being adopted ahead of the parliamentary and presidential elections next year. As such, the administration will have to brace for mounting pressure from political parties to ease monetary and fiscal policies.
