Reporter's Notebook Finance minister and fiscal soundness

Deputy Prime Minister and Finance Minister Hong Nam-ki attends the National Assembly's Special Committee on Budget and Accounts, Tuesday. Yonhap

By Lee Kyung-min

No one seems to be in a tighter bind than Deputy Prime Minister and Finance Minister Hong Nam-ki in a country where meddling by politicians in economic policies is increasing immeasurably and shamelessly at the expense of fiscal soundness.

Hong said the country's fiscal soundness is in a “robust” condition during a session of the National Assembly Special Committee on Budget and Accounts, Tuesday, less than a day after he expressed concern that the country's treasury was “emptying fast.”

Monday's comment came in response to a question from a ruling party lawmaker who criticized the finance ministry's reluctance to increase fiscal spending at a faster pace amid the fourth wave of the COVID-19 pandemic triggered by the Delta variant.

“What good is any of the treasury if It cannot be used when people are suffering? Explain why you think the treasury should stockpile. You should reflect on whether the government provided enough support for the people to feel and appreciate the degree of assistance in times of extreme uncertainty like now,” said Rep. Ko Min-jung of the Democratic Party of Korea.

In response, Hong pointed out that the key campaign aide to President Moon Jae-in had it wrong, adding that the treasury was not stockpiling, but being emptied fast.

“We have found ourselves in a dilemma because the country's fiscal condition is deteriorating,” he said. “But it is not true to characterize the government's policy as reluctant since we have drafted six extra budgets to help ease the financial hardship experienced by low-income earners and small businesses.”

This was an understandable response, since government debt is soaring fast relative to the country's GDP, mostly due to expansionary fiscal spending induced by the unprecedented public health crisis.

The ratio of government debt-to-GDP will rise to 50.2 percent, significantly up from 36 percent in 2017. Government debt will spike at 1,068.3 trillion won ($ 0.9 trillion) next year, according to 2022 budget plans, up from 680 trillion won in 2018.

Ruling party lawmakers desperate to appeal to voters are highlighting that Korea's figures are not as high as other countries.

But the concern is not the increase itself but its pace, and that Korea is an emerging market highly vulnerable to external financial shocks given its currency is not included among global reserve currencies.

A considerable portion of Korea's budget is financed by debt. A deterioration in the country's fiscal soundness will translate into a higher spread between government-issued bonds and ones issued by the U.S. with the same maturity. This means Korea's debt-financing will be at risk once the country's bonds lost their luster to overseas investors, pricing in the soaring debt.

Of course, the scenario does not pose an imminent threat, but being complacent will come at a price. He should have explained this when he had the chance during the nationally televised Assembly session.

The finance minister, who recently celebrated 1,000 days in office, should know better than to flip-flop on his views, whenever prompted by politicians whose only priority is to get reelected.

Otherwise, he will not only lose face, but also public trust.

Perhaps he already has.