The Korea Herald


Think tank chief warns against price controls

By 황장진

Published : Jan. 6, 2011 - 18:20

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Government intervention to control rising food and necessities prices should be resisted, the head of a South Korean free market think tank said Wednesday.

Center for Free Enterprise head Kim Chung-ho said that any government attempts to micro-manage prices of food and other necessities were destined to fail and were more characteristic of a “command economy.”

Food prices surged more than 33 percent in December from the previous year, largely due to poor weather, leading President Lee Myung-bak to declare a “war on inflation” Tuesday, without outlining specific action.

But Kim warned against the temptation to tell merchants and co-ops to lower prices, adding that such interventions would likely fail because sellers not targeted by the government would continue to set prices as they wanted.

“The current administration still wants to use command and control as its method of governing the economy,” he added.

The government is to unveil a package of measures to control prices of food, university fees and utilities on Jan. 13. Though no specific measures have yet been announced, Fair Trade Commission Chairman Kim Dong-soo said his organization would seek to improve the distribution structure for goods.

The CFE’s Kim, however, said that trade surpluses had been too high for several years and were adding to inflationary pressure. He said that instead tariffs and restrictions on imports should be dropped to lower Korea’s trade surplus. This, he said, would lead to more imports and lower prices on goods.

“I still don’t understand why there are so many trade surpluses (in) Korea. In the long run, at least, the imports and exports must balance,” he said.

Kim also said the money supply should be tightened to battle rising prices, adding that low interest rates from Bank of Korea up until now have contributed to higher inflation.

By John Power (