Populism out of control

Yeom Tae-jung
The author is the business news editor of the JoongAng Ilbo.

One hundred million won ($86,000) is big money for ordinary citizens. Those who struggled to pay off any debt know it well. If you borrow 100 million won through mortgage loans with relatively low interest rates, you should repay approximately 1 million won each month, including the principal and interest, for about 10 years. The removal of that amount from your bank account every month makes your life tougher.

When a newborn becomes a high school student, each citizen must bear 100 million won in national debt. A recent projection by the Korea Economic Research Institute (KERI) based on the pace of national debt increase over the past five years and population estimates, the per capita national debt of the working population is expected to hit 105 million won in 2038, 210 million won in 2047, and 307 million won in 2052. That is apparently a huge burden even through the weight of national debt may feel different from the weight of personal debt.

The pace of Korea’s national debt increase is dazzling. The Moon Jae-in administration’s 2022 budget shows our national debt is set to reach 1,068 trillion won next year. Our national debt-to-GDP ratio has already exceeded 50 percent for the first time. The debt continues to grow fast. In 2025, it reaches 1,408 trillion won and the debt-to-GDP hits 58.8 percent. The liberal administration has drafted next year’s budget of 604.4 trillion won with the justification that it is necessary to overcome the Covid-19 crisis and prepare for a rebound. Who would refute the argument if the money is used properly?

The problem is an alarming parade of populist spending ahead of the presidential election next March. I wonder if the government has any willingness to control the snowballing national debt. Next year’s budget for young people is fixed at 23.5 trillion won, up 3.3 trillion won from this year. Despite the need to support the struggling generation amid the pandemic, I have strong doubts about the effectiveness of such handouts. Will the government’s plan to dole out 200,000 won to each of them for a year substantially help them cover their monthly rent? What about the provision of a 200,000-won monthly voucher for three months to help them recover from mental stress through psychiatrist services? Political analysts link it to the desperate need for the government to earn their hearts back before the election after losing their votes in the mayoral by-elections in Seoul and Busan in April. The government denies it, but its moves point to the opposite direction.

Despite the liberal administration’s pledge to spend the money wisely, government budget is vulnerable to hefty spending, as the money does not come from one’s own pockets. That’s why budgets for pork-barrel projects and populist motives are repeated over and over. Once the government hands out the money, it can hardly reduce it.

In October, the government announced a bold plan to manage and control its unfettered fiscal needs by introducing some strict fiscal guidelines to keep the growing national debt and fiscal deficit at bay. For example, the government restricted its debt-to-GDP ratio to 60 percent. But the ruling Democratic Party (DP) is still sitting on its hands.

The government has been avoiding any serious discussions on the appropriate level of our national debt-to-GDP ratio. As opposition leader in September 2015, Moon Jae-in criticized the conservative Park Geun-hye administration after it raised the debt-to-GDP ratio to 40 percent. Then, why is the Moon administration keeping mum after it lifted the threshold up to 60 percent? Even though the government has kept borrowing money from a myriad of public corporations and state-run companies to pay for its swollen debt since 2017, it does not calculate the money as debt. Why?

Concerns are deepening about a swift surge in national debt in tandem with our lowest birthrate and fastest aging population in the world. Fitch Ratings recently singled out Korea’s too fast an increase in national debt as a potential risk for the economy. The Moon administration simply shrugs off such concerns, boasting of its “relative fiscal soundness” compared to foreign countries. But a stringent — and systematic — management of the risk is urgently needed as national debt must be repaid by our future generations. The National Assembly must share the responsibility for the problem. It must embark on legislating our fiscal guidelines before it’s too late.