‘Ho, ho, ho!’ says MoonTo sum up the economic crisis of two decades ago that forced South Korea to accept an international bailout, then-President Kim Dae-jung’s coffers were empty. But this is only half-true. What the coffers didn’t have was foreign exchange reserves. Korea’s public finances were, in fact, solid. They remained so even after the government used over 100 trillion won ($88 billion) to bail out a number of insolvent financial institutions and companies. Kim was able to declare the foreign exchange crisis completely overcome in just 18 months and arrange a very costly inter-Korean summit all thanks to the country’s solid finances.
South Korea has two different piggy banks, in effect: one filled with foreign exchange and the other with our local currency. When one is emptied, a crisis looms. Korea learned that lesson during the so-called foreign exchange crisis in late 1997. Since then, governments painstakingly built up foreign reserves — they were up to $380 billion as of July — and maintained fiscal integrity. Even as war clouds loomed over the Korean Peninsula, foreign capital has not fled as it did 20 years ago. As long as South Korea lives with nuclear threats, it must make sure both piggy banks are safe.
The president is the guardian of the national coffers. Frankly, President Moon Jae-in isn’t performing that job very well. He has been generous with populist policies that will cost billions of dollars. He vowed to put every contract worker in the public sector on the permanent payroll. He wants to create 174,000 new government jobs, scrap nuclear reactors, and increase the minimum wage by double digits annually during his five-year term. Last week, he announced a stronger public healthcare program that could cost 30.6 trillion won. He ordered a revision of the law to raise basic monthly allowances for low-income senior citizens to 300,000 won. No presidents have ever been so profligate in his first 100 days in office.
His governing style shows a pattern. First he visits the site of some social injustice. He assures that new spending won’t damage public finances. He tweaks data to back his plans as seen in lowering electricity demand estimates and changing the reference date for hikes in premiums in national health policy. He promises no extra burden on the common folk from hikes in electricity bills from phasing out nuclear power or improving health insurance. He does not explain what may happen after he leaves office.
Few would disagree that the country needs better social security and more welfare. But even if the direction is right, the ramifications on national finances can not be ignored. The government claims it would need 8.2 trillion won over the next five years to finance 170,000 additions to government positions. But the National Assembly Budget Office estimates the extra payroll would reach 28 trillion won. It will need a whopping 350 trillion won if those employees keep their jobs for 30 years until legal retirement age.
Raising the basic allowance and strengthening national healthcare will cost even more. The population of Koreans aged 65 or higher will double from the current level to 14 million in 2033. The cost of basic allowances for them will be astronomical. The Bank of Korea estimates 2.8 trillion won more will be needed per year for the next 50 years due to demographic changes. In other words, even without Moon’s policy, the country will require 140 trillion won extra in welfare spending for the next 50 years.
The government intentionally ignores these figures. The president announces a plan, and the finance minister seconds it with a promise to carry it out without hurting public finances. There are two ways to safeguard fiscal integrity. One is to spend less and the other is to find means to increase revenue to make up for any increased spending. Increases in blanket taxes and structural and labor reforms would be the solutions if increased spending is inevitable. But the government stays mum on such unpopular ideas.
A nation does not suddenly turn richer because it has a new president. Structural challenges are abundant. We cannot afford our elected guardian of the national coffers to play the role of Santa Claus.
JoongAng Ilbo, Aug. 17, Page 30
*The author is a columnist of the JoongAng Ilbo.