A war needs a commanderYi Jung-jae
The author is a columnist of the JoongAng Ilbo.
President Moon Jae-in said he was touched by a comment from a breadwinner that his family had enjoyed a beef dinner with the coronavirus relief grant he got from the government. It’s not bad to have a president who has a soft heart. But a leader must always keep his head cool. Colossal spending in the face of a national crisis stemming from a virus outbreak must be planned with the head not the heart. Bad planning could drain the national coffers and put the future generation in heavy debt.
The current situation is like facing a drowning person. Lifeguards will tell you not to jump into the water yourself. To help the victim, it is better to find a life preserver, rope or long pole. Jumping into the water could jeopardize both lives. A skilled lifeguard and rescuer would go into the water and swim behind the person in distress in order to avoid being pulled into the water by the panicky victim. A cool head can safe lives better than a hot-blooded heart.
The floor-leader of the ruling party reminded us that a family will do anything including taking out loans if there is a sick person in the house. At times like these, debt is nothing to be ashamed of. Rich economies like the United States, Japan and Europe have been digging into debt to finance a stimulus campaign against the pandemic. Korea’s public finances are relatively robust. The president as a commander-in-chief has ordered “deployment of fiscal capabilities to the utmost” as the current situation is “warlike.” But how well the money is spent is more important than how much. When opening up the fiscal tap, authorities should keep to three principles.
First, debt should be the last resort. A household will first withdraw savings, cancel insurance, cut costs and tighten its belt before turning to lenders. Loans are usually sought when the money is not there to raise and educate kids.
The increase in government debt to an unprecedented level should be accompanied by unprecedented deregulatory reforms. Only then does deficit financing make sense. The National Assembly last week passed just one of 11 bills the Korean Chamber of Commerce and Industry called essential legislation to help businesses fight the Covid-19 fallout. The other 10 — revisions to the labor act to allow more so-called flextime, a retail industry advancement act and a services industry advancement act — have gone into the trash bin. Much fault lies with the ruling party, which is opposed to easing the cap on industrial companies’ stakes in companies in the finance sector and telemedicine. The ruling party must reverse damaging policies like the income-led growth model that has worsened inequalities and the phasing out of nuclear reactors, given the ramifications on industry and the economy. The people won’t understand if the government keeps clinging to its obviously bad policies when it is issuing over 100 trillion won in new debt.
Second, the government must set a timetable for repaying or reducing the debt. In the wake of the global financial meltdown in the late 1990s, finance watchdog chief Lee Hun-jai argued that public funds must be repaid within the government’s term. The next government won’t bother with debt it has not raised. Lee noted Woori Financial Group (or Woori Bank) has not been fully privatized, although more than 20 years have been passed since the lender was bailed out. The incoming government will refuse to accept accountability for the debt that was raised under the Moon Jae-in administration. Debt obligations fall on the lender. If the increased debt cannot be covered within the two years left in Moon’s term, the government must at least come up with a three- to five-year plan. The Blue House recently hosted a public finance strategy meeting, but did not set any goals to improve the public finances in the future.
Third, spending must be prioritized. If it isn’t, greater damages can result. In an emergency situation on board a plane, an adult should first put on the oxygen mask that falls from above, and then tend to children and elderly companions. Wrestling to put a mask on a frightened child could risk the lives of both the parent and child. The parent can be likened to jobs, the elderly and children to the weak or jobless under our COVID-19 emergency situation. If money is recklessly spent, jobs could be lost and the weak and jobless cannot be saved.
If these three principles are not respected, the government will be impotent or ineffective. Moon must prove he is out on a campaign to save the economy — not a political one.