Beware of Korea’s rush to join the advanced club

Kim Dong-ho
The author is the economic news editor of the JoongAng Ilbo.

The Korean economy will not likely show even one percent growth this year amid the country’s ever-worsening fiscal health. That can be compared to individuals whose income stays the same with no savings in their accounts. If so, they must take a loan from banks to survive.

The country is no different. After crossing the threshold of 1 quadrillion won ($753.6 billion), Korea’s national debt swelled to 2.33 quadrillion last year, when including the amount the government must pay for possible losses in pensions for government employees and retired soldiers. Korea’s GDP last year was 1.97 quadrillion won. The government expects its tax revenue to be 20 trillion won short of this year’s budget at 639 trillion won.

What happened to a country ranked 10th largest in GDP and proud of its soft power? The people are not at fault. They are still working the longest hours, except for Mexico among the 38 OECD member countries. The responsibility should be held by politicians still engrossed in political fights over ideology.

The biggest responsibility for the poor state of fiscal health must be held by the past Moon Jae-in administration. The liberal government was immersed in an unprecedented spending splurge as if the state coffers were an endless fountain. When asked by reporters about his relentless push for populist programs, Moon retorted by asking, “What’s the ground for fixing the national debt-to-GDP ratio at 40 percent?” The comment the president made in 2019 even before the onslaught of the pandemic led to the collapse of the decades-old fiscal balance. Government debt surged to over 400 trillion won during Moon’s five-year reign, swiftly raising the debt-to-GDP ratio to 50 percent from the upper 30 percent range before he took office. Moon’s five-year term was marked by the rapid expansion of government expenditures as in Latin America.

The conservative Yoon Suk Yeol administration wants to end such populist spending. But his government has trouble finding a breakthrough after economic conditions rapidly worsened. It can hardly succeed in the labor, pension and education reforms Yoon championed as a presidential candidate, given his government’s poor policy coordination among related ministries and the sensitive timing of less than a year left before the next parliamentary elections. A bigger problem is that the conservative administration seems to be mimicking the liberal administration in spending taxpayers’ money.

Let’s look at what happened to Yoon’s campaign promise to raise a military sergeant’s monthly pay to 2 million won. (The promise was first made by Huh Kyung-young, founder of the National Revolutionary Dividends Party and an iconic populist — and unstoppable — presidential candidate.) After President Yoon raised the monthly pay for sergeants, pressure for pay increases for officers and non-commissioned officers is also mounting. Yoon’s crusade to break the overbearing business ways of commercial banks and apply the rigid 52-hour workweek flexibly also faces stumbling blocks. It could be an offshoot of his naïve trust in bureaucrats and so-called “polifessors,” a portmanteau of politics and professors, who are experts in drawing up a report nicely.

Yoon received relatively good scores for his policy to lower corporate tax and real estate tax. But the policy is drawing criticism for not considering the dark clouds over the economy. If the government could not forecast an upcoming recession, it is incompetent, and if it did push a tax cut while knowing the incoming recession, it is no different from a populist one. Yoon’s tax policy is expected to cause an accumulated tax revenue loss of 64.4 trillion won from 2023 through 2027, the final year of his term.

One may wonder if that is still better than the populist proposal from the Democratic Party leader Lee Jae-myung to provide each citizen a basic loan of 10 million won. We don’t have to talk about his provocative “basic pay” series here. What worries us is the irrevocable third-tier politics. Unless we end such populist politics, the Miracle on the Han River will come to an end. We must wake up from the self-complacency from the myth of the 10th largest economy.

We must look squarely at the grim reality the country faces amid the tense hegemony contest between the United States and China. Last year, the share of Korea’s export shrank to 2.7 percent of the global trade. Even Samsung Electronics and SK hynix suffered a deficit after enjoying a bonus party year after year. The U.S.’s methodical crusade to produce semiconductors on its home turf rings loud alarms on the future of Korea’s chip industry.

All the troubles may have originated with Korea’s rush to join the advanced club. The government must seriously reflect if it had squandered taxpayers’ money and if it forced out companies through anti-market policies. The only solution is to vote for sincere and hard-working candidates so that they can work in the National Assembly.

The Yoon administration should not be swayed by approval ratings and instead push forward farsighted policies for the country’s future. It must raise the overly-low utility rates while caring for the underprivileged, and must not take the wrong path. Only when the president expels populism from politics can the country move forward.