Don’t ignore warnings from Mr. Guts

Former Deputy Prime Minister and Finance Minister Kang Kyung-shik, who commanded economic policy during the Asian financial crisis in the late 1990s, advised the Yoon Suk Yeol administration to review its diagnosis that the fundamentals of the Korean economy remain sound. In an interview with the JoongAng Ilbo, he reminded that the government had also been complacent about the health of the economy before the bailout from the IMF.

“The fundamentals basically rest on fiscal integrity, but it sharply deteriorated due to populist policies,” Kang said. Due to aggressive fiscal spending for wasteful policies like nuclear reactor phase-out and income-led growth, Korea’s debt has amassed to nearly half the size of its GDP, he pointed out. He disagreed with the argument for a sound economy.

Kang stressed the role of the fiscal authorities as the gatekeeper of national coffers. In the episode he shared in his memoir “The Things the Nation Should Do, and Not Do,” President Park Chung Hee rounded up cabinet members and executives of the ruling party before its submission of next year’s budget to the National Assembly. The justice minister at the meeting proposed to the president an increase in allowances for prison guards. Kang, a director general handling the government budget at the time, approached the deputy prime minister for economic affairs to advise on his response.

When the president told Kang to speak up instead of whispering into the ears of the deputy prime minister, Kang stood up and said “no” to the justice minister’s demand. The meeting room was filled with laughter. The president would have expected a positive answer or at least a promise for a review. Kang recalled that he had been commended for being “brave” as he spoke his mind before the president. “Even if the governing party’s power has become stronger, the finance ministry should be able to say ‘no’ to unacceptable budget demand,” he said.

Labor reforms such as enabling layoffs took place after the 1997-98 financial crisis. But today’s politics are disappointing. A standing committee dominated by the Democratic Party (DP) plans to directly put a controversial revision to the labor act to a vote at the plenary session despite strong opposition from the governing People Power Party and business circles because of the fear that the revision aimed at helping labor unions stage strikes more freely can cause great confusion in workplaces. The labor minister expressed concerns about deepening conflict if the revision passes through the legislature. The DP and the labor sector are pushing companies to endure strikes at worksites at the risk of losing competitiveness against global rivals. There are too many who are complacent about the economic fundamentals this time too.