Consider Korea’s circumstancesOn Sunday, the Blue House halfheartedly admitted to the negative risks to the economy. In a press briefing, Yoon Jong-won, the senior presidential secretary for economic affairs, said industrial and trade activities have become sluggish as a result of the widening trade war between the United States and China, and that employment conditions also remained uncertain.
Still, the government remains in denial. “The current account balance that saw a deficit in April will return to black figures once wiring of foreign shares in dividend payouts wind down,” he said. Youth employment and growth in shipments of new industries were also growing, he added. Even as data churns out one bad thing after another, the government refuses to see any fault in its policies. Yoon highlighted the national debt ratio of 35.9 percent against the gross domestic product (GDP) that fell after the Bank of Korea changed the reference data, giving the government more “political ammunition” to cope with economic challenges. He could be suggesting the government stretch budgetary spending based on the lowered debt ratio against the GDP.
The concerns over the debt share against the GDP exceeding 40 percent have partly died down after the changes to the BOK measurement brought down the ratio. But the dispute was meaningless in the first place since few could confidently argue the need to stick to a 40-percent threshold.
When the economy slows, most economists and policymakers argue for fiscal expansion. But there must be some guidelines on how to use public finance. Korea cannot be compared to the United States and Japan, whose debt ratios against the GDP hit 105 percent and 224 percent, respectively. The two states have currencies of reserve with international demand — Korea does not.
South Korea requires stronger public finance than other countries. The population is aging at the fastest rate in the world and the fertility rate hovers around zero. The country must also prepare for unification. There is the public-sector debt to consider. Apart from the national debt of over 700 trillion won ($590 billion), public enterprises are saddled with over 500 trillion won in liabilities. If they go sour, the state is responsible.
Seoul must set its own guidelines to reflect the country’s problems. Experts must gather to share their wisdom. The country must go through a stress test to see its strengths and limitation in weathering challenges. The government should only then set public finance guidelines. Then it can seek public support on its spending scheme.
JoongAng Ilbo, June 10, Page 30