The flip-flop man

Deputy Prime Minister for the Economy and Finance Minister Yoo Il-ho has cried wolf so many times that few reporters pay much attention to what he says anymore. His vow on Monday to rein in speculation and overheating of the property market in some neighborhoods in southern Seoul failed to impress. Usually reporters would have jotted down and published the deputy prime minister’s claimed crackdown on speculation.

Instead, they checked out if there was anything backing his words. Unsurprisingly, the Ministry of Strategy and Finance that he heads issued a statement saying that nothing has been determined.

A few days back, a similar fiasco took place. During a parliamentary audit, Yoo said the government would review additional real estate measures such as adjusting criteria for mortgage borrowers ratio that had been eased by his predecessor to stimulate demand. The ministry once again had to hurriedly trot out a denial that adjustments to the criteria were not under consideration at the current stage.

Reporters now make it a habit to double-check comments from the deputy prime minister with the senior ministry officials before reporting them. A few weeks ago, local media outlets highlighted a difference of opinions between the finance minister and central bank governor, suggesting each were blaming the other for not having fiscal or monetary options to stimulate the sagging economy during their attendance at an international meeting in Washington. Yoo claimed his words were misrepresented. Last Spring, the minister spoke disapprovingly of an idea raised by ruling party lawmakers to introduce a Korean equivalent of quantitative easing to help finance corporate restructuring. Yoo did a volte-face and supported the idea when the president said it would work well. Soon after taking office, Yoo opposed the idea of a supplementary budget, but in less than two months, he said it could be possible.

There could be good reasons for his frequent change of positions. But the words used by the chief economic policy maker in the country should carry weight because they can affect the markets. Moreover, Yoo’s flip-flops usually involve sensitive economic issues and policies that can shake the markets. The markets will no longer have faith in the government if such reversals create disruption and disorder. Public policies in the future would not work. The new real estate actions also could go up in smoke.

Real estate transactions in the posh Gangnam district, which Yoo pinpointed as the hotbed of speculation and overheating, suddenly stalled after the comment from the deputy prime minister. Some people even offered to sell their apartments by reducing the price by tens of millions of won.

The market reacts that quickly to words from a top policymaker regardless of whether there is any truth to them.

But the market won’t likely fall the next time. Some are already betting that the government won’t be able to do anything about the real estate market at least until the presidential election next year and that soaring home prices in southern Seoul have room to gain another 20 percent to 30 percent.

The government hopes to rein in excessive price rises in some areas in southern Seoul while hoping the real estate market as a whole improves.

But that kind of fine-tuning rarely works out. The government has two means to stabilize the market. One is having the Ministry of Land,
Infrastructure and Transport control new apartment supplies and another is having the Financial Services Commission (FSC) regulate lending for home purchases. In other words, the government could flood new supplies in southern Seoul and toughen the mortgage-backed loan regulations.

But both routes are unrealistic. There are other less drastic options of fixing the apartment application and resale guidelines or regulating the second payment regulation. The market needs to be adjusted through such operations. The government needs to act tightly and fast in order to make its policies work properly. Any wrong signals or false warnings could ruin the campaign.

The land ministry wants to refrain from using radical measures such as designating certain areas as speculative zones. It questions the effect and worries about the spillover across the nation if the market in southern Seoul sinks. The FSC also dose not want to touch the mortgage-backed loan regulations such as the loan-to-value and debt-to-income (DTI) ratios. Household debt surged from 1,000 trillion won ($888 billion) to 1,257 trillion won after the DTI cap was lowered two years ago. If it is raised again, individual lenders would have to pay off that much of the debt. In that case, home values could crash and wreak havoc on an already fragile economy. As the elections are coming up next year, the FSC cannot afford to take such a risk.

Yet the deputy prime minister continues to shoot off his mouth, speaking of grand plans before they have been coordinated with other government offices. That is why the government has been accused of delaying industrial restructuring in fear of massive layoffs and dumping the blame on the legislature for preventing our economic recovery and doing nothing about the bubbling real estate market.

It would be better if the deputy prime minister made a slip of the tongue — instead of demonstrating a lack of philosophy and coordination among government offices. It would be too sad for the stumbling economy and people if their fate is left in the hands of such an incompetent government.
JoongAng Ilbo, Oct. 20, Page 34

*The author is an editorial writer of the JoongAng Ilbo.

Yi Jung-jae