Populism Clouds Economic Policies
By Yoon Ja-young
Staff Reporter
An increasing number of financial issues, it seems, are influenced by political populism rather than economic resolve. Though it is true that obstinate policymaking, obsessed with market principles should be avoided, there is a growing concern over igniting the side effects of ``political meddling'' in the economy.
The recent argument regarding the interest rate ceiling on private moneylenders shows that the ``free market'' is never free from politics.
The government recently cut the annual interest rate cap on private moneylenders to 49 percent from 66 percent. The number private moneylenders ballooned to 17,210 last year and around 3.3 million people are estimated to borrow from them. They often disregarded the legal ceiling and used illegal ways at retrieving the funds.
Though the issues of private lending requires urgent attention, the government's sudden change of attitude shows political intervention. Finance and Economy Minister Kwon O-kyu had originally opposed interest rate cap, saying it could drive low-income people away to unregistered loan sharks. Private moneylenders disagree, saying that the interest rate reflects cost and that they would go bankrupt with the newly imposed ceiling.
Kwon's attitude shifted again, however, and the ministry, which was expected to lower it down below 60 percent, lowered the cap an even further 11 percent to 49. Market watchers say he could not overlook social and political perspective.
The progressive Democratic Labor Party, for example, calls for lowering the cap even further to 25 percent. It recently launched a war against the loan sharks and even demanded that a public fund should be set up to give low-interest loans to the poor.
However, some private moneylenders are voluntarily canceling registration to avoid the ceiling and take their business to the black market, showing the interest rate ceiling is not without side effect.
Credit card commission issue also seems affected by politics where winning votes matters. Small vendors have been complaining over high credit commissions. Beauty salons and clothes shops, for example, are charged around 3.6 to 4 percent credit card commissions, higher than golf clubs or hospitals at 1.5 to 2 percent commissions. Credit card firms, however, have said that it reflects the ``economy of scale.''
Financial Supervisory Commission Chairman Yoon Jeung-hyun had emphasized that it would be solved in an economic perspective, and the financial regulatory body originally planned to come up with a measure by July 20 after holding a hearing on July 13.
The hearing, however, was cancelled after President Roh Moo-hyun's meeting with small vendors on June 27. Upon their complaints, President Roh told Vice Finance and Economy Minister Kim Seok-dong to approach it in a political perspective. The ministry assigned an accounting firm to analyze cost of the credit card commission, but card companies complain that they would have to lower it down anyway.
``It is hard to set up economic policies that would drive away voters ahead of elections. Politics cannot be totally disregarded,'' an official at the ministry said. Such policies, however, often ignore prices. The opposition Grand National Party, for example, once suggested that all senior citizens should be given some money each month from the government. Some economists also point out that the real estate market stabilization policies failed as the government approached it not in an economic perspective of supply and demand, but in the political perspective of economic and social polarization between the rich and the poor.