Indebted to the past
The author is an editorial writer of the JoongAng Ilbo.
A presidential election was held in December 1997 when Korea was teetering on the brink of a national default. President Kim Young-sam, whose approval rating once hovered above 90 percent, crashed during the final months of his term. The election victory went to opposition leader Kim Dae-jung. It was the first time in Korean history that the power was handed over to the liberals through election.
Twenty-three years later, another election — this time parliamentary elections — is coming ahead amid another economic crisis. Many had expected the coronavirus crisis would work negatively for the ruling Democratic Party (DP) in the legislative elections. But things have dramatically turned around. Polls and public sentiment have changed favorably towards the DP. President Moon Jae-in’s approval rating is back on the rise. The latest pandemic has defied the general belief that disaster works badly for the ruling party.
The entire world is in a warlike state. At wartime, troops and supplies are essential. The Moon administration is armed with rich resources that cannot be compared to the situation in late 1997. Luck has been on the side of the government. I am not underestimating the government’s endeavors and ability. But a battle cannot be won if the commander mistakes luck for real skill.
The 1997 crisis was restricted to Asia. The International Monetary Fund made sure to get its money back. It demanded stringent austerity and restructuring measures in return for an international bailout loan at high interest rates. It nearly put a patient in critical condition on a rigorous diet. During the 2008 global financial crisis, countries resorted to unlimited monetary easing as the entire world was that desperate. The Kim Young-sam administration in 1997 did not have any other alternatives but to turn to an international bailout. Actually, the government’s fiscal health was not that bad. Its debt against gross domestic product was just 11.4 percent in 1997, sharply lower than the current 40 percent. But Korean money was of no use when its foreign currency reserve was short. The sound fiscal coffers came in handy when the following Kim Dae-jung administration tended to care for the local economy’s revival after repaying international loans.
Compared to then, the Moon administration is better set. There are over $400 billion in its foreign currency account. The Korean central bank struck a $60 billion currency swap deal with its U.S. counterpart. The government is also much more aggressive in fiscal policy. It earmarked 100 trillion won ($82 billion) for coronavirus relief for companies and financial markets. It is also mulling cash gifts for individuals in trouble because of the virus. The ruling party is willing to do all it can with the election.
The government also has the corporate sector to thank. No fiscal spending would help if big companies had a debt ratio above 500 percent as in 1997. The combined debt ratio of companies with assets more than 5 trillion won already fell below 70 percent. Behind the numbers are the woes of the increasing unemployed in their 40s, troubled self-employed and the economically vulnerable class.
The present is always indebted to the past. The country’s relatively efficient quarantine system, which has become the envy of the world, is a product of the national health insurance system established by President Park Chung Hee. Korea’s diagnostic kit could advance after the county’s painful experience with the Middle East respiratory syndrome outbreak in 2015. It is ironic the government which was engrossed in erasing the legacies of the past conservative governments is benefiting from them.
How long this luck will last cannot be known. The future may be different from what we had expected. Modesty is the best policy for now. Even after the April 15 elections, two years are still left until the presidential election.
JoongAng Ilbo, March 27, Page 34