[The Fountain] Government shutdown and stopgap budget
CHO HYUN-SOOKThe author is the deputy economic news editor at the JoongAng Ilbo.
On Oct. 1, 2013, the U.S. federal government stopped as the U.S. Congress failed to reach an agreement by the midnight deadline to pass the budget bill. It was a financial disaster caused by the confrontation between Democrats and Republicans over Obama Care, the health insurance reform promoted by President Barack Obama.
In the first shutdown in 17 years, 800,000 federal workers were put on unpaid leave. Most government operations aside from defense and security were suspended. After the discussion to increase the debt limit also stopped, a possibility of national default emerged. In the end, shortly before declaring default on Oct. 17, the Democratic Party and the Republican Party agreed on a tentative budget bill. While the shutdown lasted only 17 days, it caused tremendous damages. S&P estimated the economic loss at $24 billion. It was a shock enough to bring down the U.S. growth rate in the fourth quarter by 0.6 percentage points.
A Korean equivalent of the shutdown is a stopgap budget bill. It is as destructive as a shutdown. Under the provisional budget system, most of the government’s discretionary spending will be tied up. There is little difference from the U.S. shutdown except that civil servants’ salaries will be paid. The bigger problem is how to pay for the necessary expenses needed for the stopgap budget. There is no clause specifically stipulating this, including on issuing government bonds or borrowing money. The stopgap measure is not suitable for the current presidential system as it was created in 1960 to prepare for the resignation of all Cabinet members and dissolution of the legislature when the country had the cabinet system government. As the stopgap bill has never been implemented, there is a big hole in its execution. Finance Minister Choo Kyung-ho warned about the possibility of the stopgap budget bringing about an economic crisis.
The governing People Power Party (PPP) and the Democratic Party (DP) are still fighting over next year’s budget. The DP holding a majority in the National Assembly declared it will pass the reduced budget. The PPP strongly opposes. If this year ends without passing the bill, the stopgap budget bill will kick in immediately. The arrogance of the DP to force the government and the PPP to surrender and the stubbornness of the PPP, with only 115 seats in the 300-member legislature, to push the budget for next year are both problematic.
In U.S. politics, a shutdown is a scary word representing national bankruptcy. The same goes for Korea’s stopgap budget. The risk should not be taken lightly just because we’ve never experienced it, especially now that the economy is on the brink.
with the Korea JoongAng Daily
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