Learning from a veteran

Chun Young-gi
The author is a columnist of the JoongAng Ilbo.

People turn to the wise at difficult times. Korea teetered on the brink of a national bankruptcy at the height of the Asian financial crisis in 1997. Lee Hun-jai, a former deputy prime minister for economic affairs, was at the helm. His steering of the Korean economy during its toughest test remains as a case study on crisis management.

The Moon Jae-in administration has acquired the power to run state affairs on its own after the ruling party’s landslide victory in the April 15 parliamentary elections. Still, we wish the Blue House and ruling Democratic Party (DP) would seek out expertise and advice from veterans of economic management such as Lee to usher the people through the dark tunnel. It is better to tap guidance from the experienced to get through the labyrinth than to listen to random opinions. Lee’s insightfulness is valuable.

Lee estimates the Moon administration needs at least 600 trillion won ($486 billion) to combat the economic fallout from the pandemic. He projects a more serious recession down the road than in the aftermath of the 1997 and 2008 crises. Public fund spending at the time was 160 trillion won — about 30 percent of the GDP. Against the current Korean GDP of $1.7 trillion, a 30 percent share would translate into 600 trillion won.

Lee recalled that the government first had estimated that about 100 trillion would be needed to save companies and stabilize the financial sector. But the cost ballooned to 160 trillion won. “The sum does not count in social welfare cost,” he said. When it is not uncertain for how long the crisis will last, the government must build up as much reserve as possible, he stressed.

President Moon Jae-in looks at Finance Minister Hong Nam-ki before presiding over a cabinet meeting on March 31 at the Blue House to forge a supplementary budget to tackle the coronavirus crisis. [JOINT PRESS CORPS]

The universal emergency relief fund being pushed ahead by the ruling power despite the finance minister’s opposition would cost 12 trillion won. The Blue House is pressing the government to issue a check to every citizen in May. But that would be just be a petty cost compared to the colossal funding the country needs in order to weather the virus storm. Finance Minister Hong Nam-ki, responsible for public finance, would surely be sweating at the thought. How will the country handle the unavoidable chain bankruptcies, household delinquencies, mass layoffs and restructuring?

The central government has asked better-off local governments to shoulder at least 1 trillion won out of the secondary supplementary budget plan of 12 trillion won. But Lee Jae-myung, governor of Gyeonggi, opposed, claiming that his administration has squeezed available reserves to hand out separate relief allowances to residents in the region.

He is not lying. The Gyeonggi provincial government already used 1.3 trillion won to give out 100,000 won each to 13 million residents. The local government has little left in the coffers to cope with another disaster or possible insolvencies of companies or self-employed businesses in the province.

The central government is also not safe from such a fiscal disaster. What if it runs out of money in case tougher crises arrive down the road? The DP must turn to the wise and experienced. Lee may have some ideas.

“If we survive the virus crisis, Korea will become stronger,” he said.

JoongAng Ilbo, April 27, Page 30