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Finance ministry split plan sparks concerns over policy coordination
Ministry of Economy and Finance in Sejong Goverment Complex / Korea Times file
By Lee Kyung-min
The Lee Jae Myung administration’s plan to split the Ministry of Economy and Finance into two separate bodies is causing fears of diminished momentum, market watchers said Monday.
Many say the overhaul, which would split off economic and policy oversight from budget and strategy planning, could undermine government policy efficiency, since policy goals cannot advance without a budget. This could lead to a lack of clear policy priorities and result in delays.
At stake is Lee’s initiative to bolster artificial intelligence (AI), green growth and bioindustries, all part of a plan to raise Korea’s potential growth to 3 percent during his term, up from the current low of 1 percent.
The Ministry of Economy and Finance will oversee economic policies and taxation. It will take over financial market policies and regulation functions from the Financial Services Commission, which is to be reorganized to merge with the Financial Supervisory Service.
The new budget ministry to be established under the Prime Minister’s Office will take over budget planning, fiscal policy and long-term debt management.
“The power of the finance ministry's policies come from its ability to follow through with budgets,” said Lee In-ho, a former economist at Seoul National University.
“It is doubtful whether the split ministry will remain just as powerful. Without budgets, they will face setbacks — expected and unexpected alike.”
Reform efforts are understandable, since the powerful ministry has long been criticized for its immense budget allocation authority over other ministries, he added. However, the split is likely to exacerbate administrative friction, a major disruption for the country’s path to recovery amid extended low growth over the past few quarters.
“An AI transition needs fast, timely decision-making backed by prompt funding," the economist said. "Whether the policies will receive rapid funding remains questionable. The government’s drive to raise potential growth could, in turn, face setbacks.”
Equally concerning is the country’s long-term fiscal policy outlook, according to an observer who spoke on condition of anonymity.
"Government debt management will be overseen by the budget ministry — but think about it: Can the long-term fiscal health of the country be adequately prioritized if the incumbent administration is focusing more on immediate results? The checks and balances will not function, with those calling for long-term goals largely dismissed under the need to win popularity for elections and approval ratings.”
Policy coordination will face greater challenges, he added.
“Already, communication between departments under the finance ministry are not smooth," he said. "They consider addressing matters outside their official duties to be a clear overstepping of boundaries — let alone voicing concerns or making recommendations. Once the split is complete, coordination will worsen.”
Other government ministries will have to mobilize more resources to spearhead new policies.
“Under the current system, government ministries have to discuss their policy goals and funding needs only with the finance ministry," he said. "However, the split system would mean more time, effort and resources to outline and deliver their policy objectives.”
The Lee administration says the reform is expected to be completed within the year, with the new system taking full effect early next year.