Oblivious to history
The author is chief editor of content production at the JoongAng llbo.
President Moon Jae-in wishes to be remembered as a head of state who started a digital revolution for the country, a senior government official said, explaining why the government was launching a state fund to finance the New Deal Initiative. The official is not exaggerating about the president’s determination for the initiative. All presidents want to leave a lasting legacy and achievements. They like to set a footing for a new future. Their aspiration grows from the turn of the mid-term. A presidential term is restricted to five years in Korea, but history lives on.
Former liberal President Roh Moo-hyun initiated negotiations for a free trade deal with the United States to pave the way for new growth for the economy. He pursued the idea in the face of vehement opposition from unions, farmers and others on the progressive front. As a result, Korea has gained tariff-free access to the world’s largest market and time to build competitiveness amid the fast rise of Chinese industries. In the process, Roh might have lost some of his supporters, but he certainly helped create new opportunities for the country’s future.
If President Moon really cares about his impact on history, he should tend to public finance. His government has been carefree in spending. Debt has been piling up at a staggering pace. Korea’s national debt that had been 660 trillion won ($567 billion) when Moon was inaugurated in 2017 is expected to hit 1,070 trillion won by the time he leaves office — a 400 trillion won increase in five years. The government’s debt-to-GDP ratio, which stood at 36 percent in 2017, is slated to reach a whopping 50 percent by 2022. Alarm bells are ringing in public finance management.
Money should not be used by populist politicians and thoughtless bureaucrats. Someone has to keep watch. It is the primary role of the elected leader. Fiscal spending should be sourced from tax revenue and any shortage would have to be covered by issuing national bonds, which would bill the next generation. Unrestrained fiscal spending and management spells doom for the national economy.
Many still have vivid memory of the 1997 financial crisis. No country has overcome an international bailout crisis so fast and dramatically. Fiscal integrity had been Korea’s winning asset. Despite corporate and financial risks and insolvencies, there had been international confidence in the government finance.
The first thing the finance team in the Kim Dae-jung administration did to fight the bailout crisis was to streamline. It kept rigorous watch over its fiscal condition regardless of pressure from the International Monetary Fund. Restrained spending caused an economic contraction in 1998. But because the government cut spending first, it was able to demand the corporate and financial sector do the same. Because the government set an example, restructuring in Korea Inc. made progress.
When ruling Democratic Party (DP) Chairman Lee Nak-yon proposed a subsidy of 20,000 won to pay for monthly mobile phone bills of every citizen in the fourth supplementary budget, Moon should have said no to the idea. The spending of 930 billion won for the phone bill subsidy amounts to a month’s allowance handouts for the unemployed. Financing everyone’s phone bill was not a good idea from the start. Yet Moon went along with the idea “in a show of goodwill and government’s sincerity to give a little comfort to people fatigued by the coronavirus.” He gave into debt-financed populism. The biggest sin of the government is indiscretion with debt.
The Finance Ministry under Deputy Prime Minister Hong Nam-ki has long surrendered its role of gatekeeping public finance. The ministry officials could claim that they only took orders from the president and ruling party if they are summoned to the court of history for wreaking havoc on the country’s fiscal condition. But they showed neither the will nor the boldness to defend the health of the public coffers.
If Moon cares about what history will say about him, he must order efficiency in fiscal management to contain our snowballing debt. It would be his biggest achievement if he leaves strong public finance and a lessened debt load for future generations after the country survives the pandemic crisis.