The finance minister’s overtime battle

Cho Min-geun
The author is the business and industry news director of the JoongAng Ilbo.

The second economic team under Yoon Suk Yeol’s presidency has sailed off under new captain Choi Sang-mok, the deputy prime minister who also serves as finance minister. Choi would return to his home ground after retiring as the first vice finance minister in 2018, following his stunt as a secretary to former president Park Geun-hye, who was impeached before her term formally ended. Choi led economic policy at the time, but his role was cut short after the conservative government’s abrupt end. The retired bureaucrat was tapped by President Yoon Suk Yeol to become his first senior secretary for economic affairs in 2022.

However, the economic climate Choi now faces as the captain of economic management is not favorable. He quoted a Chinese saying about a long road ahead with heavy burden on his shoulder. He is not exaggerating. This is Choi’s second chance to complete his unfinished missions left over from the last conservative government.

The conditions on the economic playing field are worse than they were six years ago. The lagged waves from sharp interest rate hikes are building up, as the tightening cycle winds down. His first meeting was a discussion of the government’s response to the demise of Taeyoung Engineering & Construction, a major construction company. The company’s application for a debt workout program after struggling to meet project financing (PF) obligations related its real estate development projects has raised jitters about ticking-bomb PF risks that could shake the capital market.

Domestic demand remains lethargic under the strain of high interest rate and prices. Private consumption grew just 1.9 percent on year in 2023, sharply slowed from 4.1 percent in 2022, according to the Bank of Korea. The export front at least offers some hope. Exports have been on the rise for three consecutive months thanks to the recovery in semiconductor demand. But whether that pace can be maintained remains uncertain due to escalating trade protectionism and mounting risks from supply chains because of frequent regional conflicts. In short, the economy is going through a composite crisis.

Unlike the last time Choi managed economic affairs, policy means are now restricted. Lowering the interest rate to ameliorate pressure is out of the question for now. The move could send inflation spiraling higher and further fuel ever-ballooning household debt. The room for fiscal maneuvering is limited, too. National coffers are increasingly thinning after years of aggressive fiscal expansion under the past administration and deteriorating tax revenue. The government expects its fiscal deficit to reach 92 trillion won ($70.3 billion) this year. Choi and the Finance Ministry are grappling with an unprecedented tax revenue shortage.

The political environment ahead of the April 10 parliamentary election makes things harder still. The finance chief will be tested on his ability to defend fiscal integrity from populist policy demands from both rival parties. Consumer prices the finance ministry strived to forcibly cap — particularly those of staple consumer items like bread or ramyeon — could all spring up after the general election ends.

But he cannot score big if he merely commands the defense line during the overtime period. The first economic team under President Yoon Suk Yeol drew mixed appraisals: It had steered the economy relatively well under tough conditions but accomplished little other than offering tantalizing hope. As the first team concentrated too much on risk management, it could not make any strides on structural reform to bump up growth potential.

What can make or break the next policy maneuver is structural reform. The Korean economy will be heading to doom if its pitifully low birth rate, alarmingly fast aging, sclerotic dual labor market structure and stifling regulations are all left unattended. The economic team cannot handle the challenging missions alone. But admittedly, only Choi — the deputy prime minister for economic affairs and finance minister with authority over budgeting and taxation — can make the call on reform drive.

The outline to advance the services sector, proposed by the government under former President Park, remains deadlocked at the National Assembly. In the meantime, the economy is stuck in a slow gear. The service bill was drawn up when the country’s growth hovered around three percent. Today, two percent growth is the economy’s best. Foreign media outlets have warned of “Peak Korea” and its outlandishly low total fertility rate (0.7) putting the country on a path to disappearing from the map.

The new economic team under Choi will present the outline for this year’s economic policy later this week. It will include action plans for structural reform to achieve a dynamic economy. Choi’s team must concentrate on the substance — not on style — if it does not want to repeat the Park administration’s glitzy yet unsuccessful “Creative Economy” slogan. Choi cannot afford to dilly-dally.