Listen to the advice

The Korean economy faces a colossal crisis. The government must resist populist temptations and restore its weakening fiscal integrity, advised former deputy prime ministers for economic affairs and finance ministers in a forum hosted by the Federation of Korean Industries (FKI). Their words bear weight as they come from fiscal policymakers who struggled to defend the economy and national coffers at times of crisis.

Former Finance Minister Yoon Jeung-hyun found the economy under a complicated crisis of low growth, high employment, wealth polarization and deepening social conflict. Economic conditions have been worsened by the three highs in interest rates, exchange rate and consumer prices, as well as by the twin deficit in fiscal and trade accounts, a colossal household debt and the surge in real estate prices.

Another finance minister, Kang Man-soo, pointed to the alarming won-yen exchange rate. At the onset of the past crises — the 1997-98 Asian financial crisis and the 2008-09 global financial crisis — the 100 yen fell below 1,000 won. The 100 yen slid to 940 won recently. Korean products competing with Japanese counterparts have lost that much price competitiveness. Kang demanded our financial authorities take a careful approach to interest rate hikes as they can raise the won’s value. He also called for a cut in the corporate taxes to the levels of rivaling countries to reinforce price competitiveness of Korean products.

Former deputy prime minister Yoo Il-ho advised against populism. He urged the new Yoon Suk-yeol administration to bolster the health of public finance by refraining from populist spending. Former Finance Minister Bahk Jae-wan called for fiscal reform. “Since fixed expenditures for welfare benefits will continue to increase, debt cannot be contained without radical restructuring of government spending,” he said. Bahk advised the government to advance implementation of fiscal guidelines that had been put off to 2025. Former deputy prime minister for the economy and finance minister Hyun Oh-seok stressed consistency in policies, long-term prioritization of the interests of the silent masses, and a stricter role and liability for the economic team for economic reforms.

In the opening address, new Deputy Prime Minister for Economic Affairs and Finance Minister Choo Kyung-ho agreed with his predecessors, saying “fiscal policy must not rely on debt.” He pointed out that international rating agencies who had highly valued Korea’s fiscal integrity as the strength of the economy has begun to question the sustainability. Recognizing the economic difficulties and importance of public finance can put economic governance in the right direction. Instead of trying to wash out the failures and weaknesses from the past government in a “big bath” strategy, the head of economic team must keep to the promise to ensure the sustainability of our public finance.