Set a clear economic directionThe economic team of the new government is starting off on a shaky note. In its first economic policy review meeting, the government slashed this year’s growth forecast and warned it could run out of money in the second half. It argued that it would have to raise a supplementary budget of around 15 trillion won ($13.4 billion) through issuance of treasury debt.
We have been warning that the government could face a shortage in tax revenue if the economy moves at a snail’s pace throughout the year and that a budgetary increase would be inevitable. But the harbinger called for not only short-term stimuli actions, but also a longer-term solution to reinvigorate and refuel the country’s growth engine to speed up the economy. Yet, what the new economic team merely came up with is a belated confession that the economic situation is worse than expected and a makeshift reaction to the debt issue.
The government fell short of providing a big picture on economic management - the target on growth rate and employment. Where it plans to spend the budgetary increase is also uncertain. Cho Won-dong, chief presidential secretary on economic affairs, pledged that the government will carry out the welfare benefits President Park Geun-hye promised during the campaign and overhaul the tax expenditures. How it plans to scale down budgetary spending while leaving the most burdensome welfare cost untouched is puzzling. It would merely be a rearranging of the numbers. The economic team appears to be stumbling between strict orders from the president to oblige with campaign promises and the troublesome economic reality.
With such shortsightedness, we cannot expect new stimuli and budgetary increases to be of any help in revitalizing and steering the economy down a solid growth path. The economy cannot sail smoothly if the captain of the ship is unsure of its direction. The economic team should first make an accurate assessment of the state of the economy and report to the president.
It must come up with short- and longer-term policy goals and means and re-examine its campaign promises and policy priorities. Blaming the previous government for current difficulties is irresponsible. The new government is as much at fault for failing to evaluate the economy and come up with necessary and workable cures during the transitional period.