Only fiscal health can avert crisis

The current global economic crisis is the result of many governments spending more than they can afford. It may also have been an unavoidable outcome of the global financial crisis of 2008, which might have forced the nation to go bankrupt had the government not stepped in to take over out-of-control insolvent debts in the civilian sector.

But the United States, Greece and Italy have long lived in the red because of their excessive welfare services, which made their national debts skyrocket. Because they issued national bonds when taxation alone could not cover the cost, their national debt balance against GDP now stands at 100 percent (the U.S.), 120 percent (Italy) and 152 percent (Greece).

When a country’s ability to repay its debt is weakened, its interest rates go up, which again makes the country more vulnerable to a default. It’s better if its economy is sound enough to take in income. But Greece and Italy were unlucky and defaulted on their debt.

Against this backdrop, President Lee Myung-bak’s definition of the current situation as a “global fiscal crisis” sounds appropriate. His vows to first ensure the fiscal health of the government and to review next year’s budget with that in mind are desirable. But it is regrettable that the administration didn’t think sooner about tightening the nation’s proverbial belt. In pushing a series of projects, it even used money from public corporations for fear of raising the national debt. Yet our national debt has grown by about 50 percent over the last four years, with debt balance against GDP soaring to an estimated 35.3 percent this year from 33.2 percent in 2007. That may be better than what other countries are facing, but it’s still far from optimistic, considering the growing debt in the public sector.

A bigger problem is that we are the fastest aging society in the world. If we strive to maintain welfare services at the current level, our debt-to-GDP ratio will most likely surpass 200 percent by 2050, which would result in a critical lack of confidence in our sterling credit rating by global agencies. To avoid this problem, the government should first ensure its fiscal health.

The administration should also raise its guard against the unceasing competition for free welfare that both the ruling and opposition parties are so devoted to. Politicians, too, must stop their unscrupulous offers of pork barrel promises to their constituencies.

As long as the government can keep its two promises, it can avoid a fiscal deficit - another fatal economic crisis we don’t want.