Vision and policy matters
The author is an editorial writer of the JoongAng Ilbo.
Presidential elections have never been as negative as the latest one. Mudslinging has been nonstop, with candidates calling one another a “voodoo practitioner” or “Hitler.” Their aides were more preoccupied with campaigns of calumny than pitching policies. That explains why the fight has returned to the starting point. Since they have ranted enough, they could finally be ready for a real contest.
TV debates could set the stage. The first statutory debate on Monday raised that expectation. Although tenseness and exchanges of spiteful words continued, the candidates actually started to describe some differences in their policy platforms. Undecided centrists will likely look at the vision and policies of a candidate. The two frontrunners — Lee Jae-myung of ruling Democratic Party (DP) and his rival Yoon Suk-yeol from main opposition People Power Party (PPP) — are in a horserace with their approval ratings stagnating at around 35 percent. As that is not necessarily unusual in a democracy with people holding differing values and views, the key to winning the election is held by the centrists accounting for about 30 percent of the vote. Lee and Yoon clashed over issuing government bonds and having reserve currency, which could interest centrists.
Lee in principle upholds the policies of current President Moon Jae-in. Fiscal expansion accelerated after he challenged the finance ministry in 2019 over its policy of capping Korea’s national debt-to-GDP ratio at 40 percent. The finance ministry at first protested but eventually yielded to the mighty president. The debt-to-GDP ratio has jumped to over 50 percent this year. In three years, the ratio is expected to hit 60 percent. The surge in treasury supplies has fanned a rise in interest rates in the market.
Lee has maintained there is no problem with the debt ratio exceeding 100 percent as in the case with other developed economies. After Yoon asked Lee if that meant the government can issue national bonds without any restriction, Lee denied it. Instead, he said that the International Monetary Fund or international organizations see a country’s debt-to-GDP ratio up to 85 percent as appropriate levels. As Korea’s debt-to-GDP ratio is about 50 percent, it can afford to issue more government bonds than before, Lee added.
But he immediately added that the South Korean won could become a reserve currency given the national economic scale of the country. Lee Jun-seok, chairman of the PPP, sneered on social media that he “felt overwhelmed” at Lee’s promise to turn Korea into a reserve currency issuer. The DP added that Lee was simply citing a recent report by the Federation of Korean Industries (FKI).
Aside from the feasibility of the thought, it was refreshing to see the candidates and parties exchange punches on policy instead of swapping insults. The discussion can start on how much debt the country can handle. But having a reserve currency is a different issue. It cannot be determined by a country alone as reserve currencies are the token of economic power. What the FKI suggested in its report was the possibility of South Korea joining the Special Drawing Rights — a basket of important national currencies — the International Monetary Fund (IMP) uses for internal accounting. The value of SDR is calculated from the weighted basket of U.S. dollar, the euro, Japanese yen, Chinese yuan, and the British pound. The U.S. dollar remains the primary reserve currency used for general international settlements and transactions. Even China and Russia must hold dollars for trade.
Centrist voters would have to closely study the policies of the two candidates. Lee’s campaign promises could cost minimum 300 trillion won ($251 billion) and Yoon’s 266 trillion won. They are no different in being spendthrifts with public finances. Lee vowed to build 3.11 million apartments and Yoon 2.5 million. Lee also pledged to make the Kospi achieve the 5,000 milestone.
Reserve currency, stock prices, and housing supplies cannot be made with slogans. They are signs of a strong economy. Candidates should be vowing to improve the environment for business and investment. Exaggeration, bluffing, and negative campaigns will not win over centrists. Vision will define the winner.