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| A street in Myeong-dong, Seoul. Korea Times file |
By Lee Kyung-min
The government has continued to adjust social distancing rules as the country grapples with responding to new waves of COVID-19, with the latest threat coming from the new Omicron variant. In the wake of the recent surge in cases, discussions have arisen again on the necessity of providing financial assistance to small- and medium-sized enterprises (SMEs).
The ruling Democratic Party of Korea (DPK) is widely expected to move forward with its new round of cash-provision plans, ahead of next year’s presidential election. But if another round of across-the-board cash-equivalent payouts or an emergency policy of similar financial magnitude will come at the expense of the country’s financial soundness, said economists, Sunday.
The need for broader government support for those subject to the upcoming, unavoidable stricter distancing rules will increase, as cemented by the COVID-19 pandemic taking a new turn due to the Omicron variant.
The government debt-to-GDP ratio remains relatively low compared to advanced OECD peers, but the pace of increase in recent years is one of the fastest among nations.
Yet any further emergency liquidity pumped into the economy, already experiencing high inflationary pressures due to the previous similar measures, will translate into greater fiscal soundness risk ramifications.
Also at play is uncertainty in policy adjustments with the U.S. Federal Reserve signaling a sooner-than-expected end to the pandemic tapering and a subsequent earlier-than-expected rate hike, adding new external factors to the monetary equation that has to seek a balance between debt buildup and inflation concerns.
DPK presidential candidate Lee Jae-myung said last week that he would pledge to provide a new round of across-the-board emergency cash handouts to the amount of 25 trillion won ($21 billion), as part of his first initiative if he becomes president.
This was soon met with an even more populistic pledge by main opposition People Power Party presidential candidate Yoon Suk-yeol, who floated the idea of providing financial assistance to pandemic-hit SMEs to the amount of 50 trillion won.
The amount was then raised to 100 trillion won in what became an increasingly senseless bidding contest, after PPP top election campaign official Kim Chong-in said the amount will be distributed immediately if Yoon takes office.
Neither has specified a plan nor addressed the fiscal perils that would ensue, the most important yet widely neglected part of their pledges.
The presidential candidates and key top party officials are exchanging words online without agreement on plans to meet, treating the issue as no more than a political gimmick to grab more votes.
Korea’s government debt-to-GDP ratio stands at 47.3 percent as of this month, and the figure will top 50 percent next year. The government debt will hover around 1,064.4 trillion won, the first time ever for the figure to exceed 1,000 trillion won.
The country’s debt stood at 660 trillion won in 2017. However, it has since increased by 404.2 trillion won in five years due to expansionary fiscal spending brought on by the pandemic.
Korea’s budget for 2022 is 607.7 trillion won, meaning the 100 trillion won spent on helping the small businesses is approximately one-sixth of the national budget total.
“It is necessary to thoroughly review whether it is a pledge of kindness, or whether there is a viable financing plan at all, not to mention whether it should be the first plan executed immediately after inauguration,” Seoul National University economist Lee In-ho said.
Cash handout promises spark debate over effects on economy
Source: Buhay Kapa PH
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