[VIEWPOINT]Policy burden on the economy

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[VIEWPOINT]Policy burden on the economy

Many businesspeople as well as economists wonder what President Roh Moo-hyun’s view of the economy is. As it was expressed in his speech at the National Assembly last year, the president seems to believe in the “theory of recovery over time,” in other words, that the economy recovers as time passes. Accordingly, he seems to put policy priority on the reform of the non-economic sector rather than offering remedies for the structural crisis of our economy that market reformists advocate. His appointment of a non-economist to head policy planning at the Blue House can be interpreted as a symbolic measure.
The president can have a philosophy of the management of state affairs that puts more weight on the reform of the non-economic sector than the economic sector. But in this case, he must adopt procedures that seek the understanding and consent of the people by explaining the reasons why the reform of the non-economic sector is more important even at the risk of aggravating the economy. The Uri Party also should not manage state affairs in a self-contradictory manner that pays lip service to the foremost importance of the economy while actually formulating policies that often burden the economy. As can be seen in African or Latin American countries, the economy never automatically recovers as time passes.
The government announced its “mid-term national fiscal plan” whose essential feature is to focus on distribution for the five years through 2008. Under this plan, the government expects that the economy will record an annual real growth rate of around 5 percent and estimates that it would be able to secure 1,231 trillion won ($1.07 trillion) in revenue for the five years when total revenue increases 7.4 percent annually. According to the government’s rosy plan, if it increases annual expenditure by only 6.3 percent, so as not to have a fiscal deficit, it will spend 1,109 trillion won for the five years, and with the remaining funds it will be able to reduce the national debt and sufficiently undertake 11 large-scale national projects that require 167 trillion won.
But experts are worried about this plan. As we saw in the empty pledge of a 7 percent growth rate in the last presidential election, many doubt whether we can achieve growth every year 1 percent more than the latent growth rate of 4 percent estimated by research institutes.
If the government first allots its limited financial resources to nonessential large-scale national projects rather than to necessary fiscal investment in enhancing growth potential, accomplishment of a 5 percent growth will be impossible. Five percent growth cannot be achieved automatically as time passes but requires the painstaking efforts of the government as well as economic players to increase growth potential. The mid-term fiscal plan is not likely to improve the growth potential because it gives priority to welfare and labor or the national defense budget rather than technological innovation or information technology, or a budget for small and medium-size businesses that would determine national competitiveness.
Therefore, 5 percent growth seems impossible according to this plan. It is realistically impossible to carry out so many national projects without expanding the growth potential and at the same time recovering financial soundness and making a country where all equally live better.
In addition, our finances have become less flexible due to rigid expenditures arising from the interest payments on a substantial part of the 165 trillion won in public funds injected already. On the other hand, in light of our past experience that large-scale national projects cost many times more than initially estimated, our future financial burden will increase tremendously due to large-scale national projects like the transfer of the administrative capital that the present administration is pursuing.
As a consequence, it is highly likely that our national debt will sooner or later emerge as a cancer in our economy. To prevent this, the core forces of the government should from now on put all their energy into expanding the growth potential that could bring in money solidly rather than making policies that spend money haphazardly.

* The writer is a professor of business administration at Kyung Hee University. Translation by the JoongAng Daily staff.


by Kwon Young-joon
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