Prudence before populism pleaseA new set of proposals announced by the emergency leadership council of the Grand National Party (GNP) before the Lunar New Year holiday was nothing if not disappointing. Allegedly designed to ease the woes of the working class, it appeared half-baked and populist, little more than a desperate plea for votes. It pledged to seek cuts in monthly and longer-term rent rates through government subsidies, and sought across-the-board credit-card commission rates of 1.5 percent. At a glance, the measures seem tailored to help ordinary people who are struggling with high rent prices and soaring credit car bills.
But on closer inspection, the proposals suggest that the emergency council is becoming increasingly divorced from reality. It appears to have trotted out the measures without carrying out any research in hope of winning public approval during this festive time when spirits are high and families gather together.
For example, while it aims to ease people’s rent burden, it overlooked market principles by proposing that mortgage rates are lowered by as much as 50 percent at savings banks by using funds guaranteed by the state-run Korea Housing Finance Corp.
Financial companies charge different interest rates based on the credibility and means of the borrower. To shun this principle and propose lending rate cuts regardless of people’s credit ratings would disrupt the credit system and distort the distribution of wealth by raising the risk of moral hazard.
Furthermore, the council argues that the government would not be negatively affected because the new measure would rely on the debt-guaranteeing capacity of the state agency. What it neglected to address was the fact that any compensation for unpaid loans would eventually come from public funds financed by taxpayers’ money.
And while the lowering of credit card commissions from the average of 1.99 percent to 1.5 percent may sound tempting to small merchants and consumers, this could do more harm than good in the end. It would generate losses for credit card companies, which would cut other benefits and discriminate against merchants and consumers to make up for the losses. If small merchants were not deemed profitable enough, they could even be excommunicated by the companies.
Clearly, the GNP is desperate to please the public with radical measures. But it needs to give more thought to their feasibility and efficacy first.