Debt swelling too fast
Even more serious is where money was spent
The report that Korea’s national debt topped 420 trillion won ($370 billion) for the first time last year is alarming. Yet it is not the record-high figure itself, which just reflects growing economic size, but the too rapid tempo of the debt’s increase ― and why ― that concerns us more.
Government officials are right to caution against making too much fuss about debt statistics. The ratio of Korea’s national debt to gross domestic product remains at 34 percent, one-third the level of the OECD’s average of 102 percent, indicating the nation’s good fiscal health. But self-complacency is dangerous, as the amount more than doubles to nearly 1,000 trillion won if they include debts incurred by numerous state enterprises, both central and provincial.
Add to this the nearly same amount of household debt, then one can more easily consent to local deficit hawks’ somewhat exaggerated description of Korea as the ``Republic of Debt.”
Financial ministry officials complain that few countries adopt such broadly-defined criteria in calculating national debt. When it comes to discussions on fiscal soundness, however, a country would rather err on the side of expansion than reduction, as the example of some southern European countries show.
National debt is estimated to swell by 150 trillion won during the five-year tenure of President Lee Myung-bak, or 30 trillion won a year.
The unprecedentedly rapid debt growth is of course due in part to the stimulus spending to pull Korea out of the global financial crisis. Considering the nearly 96 trillion won worth of tax cuts for big businesses and rich individuals and almost 30 trillion won poured into the nation’s four largest rivers, including debts passed on to state firms, however, one has a clearer view of where the bulk of debt comes from.
Financial bureaucrats and conservative media outlets say Korea will fall to a debt-ridden country like Greece if liberal opposition parties take power and put their ``populist” welfare policies in action. Contrary to their wrong ― ignorant or intentional ― claims, the problems of Greece and other south European countries are not excessive welfare but incompetent, corrupt governments and rampant tax evasion. Countries free from the economic woes that sweep the Old Continent are those with the best welfare systems, like Sweden and Germany.
The Lee administration, which grabbed power with a campaign pledge of 7-4-7 (7-percent economic growth, $40,000 in per capita income and Korea becoming one of the G7 economies), has realized none of that with economic growth remaining at 3-4 percent compared with debt increasing at 9-10 percent. Corruption in this administration, including acts committed by Lee’s closest aides, is unrivaled in modern Korean history, which many people say should be uncovered through parliamentary hearings sooner rather than later.
Now that the parliamentary polls are over, Korea will fall into presidential election fervor. One of the key points for consideration is what has caused so much debt in so short a period ― growth in essential welfare spending or tax cuts to make rich people richer and non-essential public works that enriched a small number of large builders.