[Column] Where is farsighted advice for the president?
Published: 12 Mar. 2023, 19:58
The author is the economic news editor of the JoongAng Ilbo.
The Korea Electric Power Corporation (Kepco) suffered a whopping 33 trillion won ($24.9 billion) in losses in 2022 alone. The deficit will continue to pile up in 2023 because its utility charges are even lower than its production costs. As the red ink persists, the aggregate corporate bonds the public company issues will continue swelling after passing the 70-trillion-won milestone in 2022.
The primary reasons for the deficit are twofold: the reluctance of the previous Moon Jae-in administration to raise electricity rates while pushing for a nuclear phase-out policy over the past five years, and the spikes in international energy prices after the Russian invasion of Ukraine. The two factors are inseparable from the importance of nuclear reactors in the energy pie.
The conservative Yoon Suk Yeol administration signaled normalization of electricity charges since last summer to deal with the dire ramifications. Following the raising of electricity and gas fees last October, the government lifted electricity bills for the first quarter, too. In the beginning, it seemed to work well. But it didn’t.
The government’s energy price normalization scheme based on its cherished market principles started to shake from January when the raised utility bills started to arrive. After public sentiments went against the conservative government, President Yoon demanded a moderation of rate hikes — and their speed — from related ministers at the 13th emergency meeting last month to deal with the economy and people’s livelihood.
But the government’s policies got screwed up from then on. In contrast to the president’s demand for adjusting the pace of rate hikes, Trade, Industry and Energy Minister Lee Chang-yang insisted on rate hikes. “Given the accumulation of deficits under the current rate system, it is not desirable to leave the situation unattended,” said Lee, who has a Ph.D. in public policy from Harvard University.
The president’s demand for temperance on rate hikes and the minister’s push for putting the rate system back on track collided with one another, signaling a bumpy road ahead. The government hurriedly expanded the support for the weaker class after public opinion overwhelmingly turned negative toward the government after they received unbelievably high gas bills last month. The government responded by reinforcing energy voucher support for 1.17 million members of the vulnerable class while the Korea Gas Corporation widened the discount range for 1.6 million poor households in the lower income bracket. But such measures are only temporary.
It could have been better if the government had prepared a more deliberate package of support for the weaker class from the beginning. As long as they are protected from the gas bill bomb, the crisis would not have reached this far.
The government also failed to show a mature image when trying to put the brakes on commercial banks’ hefty bonus party. President Yoon lambasted the banks and telecom companies for their huge profits from oligopoly. At first glance, his rebukes deserve a praise.
But could they solve the problem? In the face of mounting pressure from the government, commercial banks lowered their additional interest rate for customers with low credit rating. But they are just pretending to do so. If the banks impose too high additional interest rates on the vulnerable class, the Financial Services Commission or the Financial Supervisory Service should have instructed them to correct the practice. But apparently, their oversight didn’t work.
If the Yoon administration thinks it can weather the grave reality the economy faces by simply reversing the Moon administration’s misleading policies, that’s a mistake. If economic policies are ridden with contradictions, they cannot succeed.
When the conservative government changed the rigid 52-hour workweek under the past liberal administration more flexibly, the Democratic Party and labor unions vehemently oppose. After the conservative government tried to mend diplomatic fences with Japan, opponents started to sing the “Bamboo spear song” again.
A rush to tackle a plethora of challenges leads nowhere. The government must revise the so-called K-chips Act and pass it through the legislature if it really does not want to repeat the critical miscalculation by the Ministry of Economy and Finance.
Yoon’s policy chief and senior presidential secretary for economic affairs must take heavy responsibility for all the mess. Only when the president listens to farsighted advice from his aides can he present more balanced economic policy to the people.
with the Korea JoongAng Daily
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