Yoon's economic team tasked with juggling growth, inflation

Choo Kyung-ho, right, the nominee for deputy prime minister and minister of economy and finance, joins a meeting of the presidential transition committee at its office in Samcheong-dong, Jongno District, Seoul, Monday. Joint Press Corps

Experts say budget restructuring could be option for incoming gov't

By Yi Whan-woo

President-elect Yoon Suk-yeol's economic team led by Choo Kyung-ho, his nominee for deputy prime minister for economic affairs, faces a tricky job of effectively juggling both growth and inflation as the Korean economy reels from the fallout of the COVID-19 pandemic amid soaring prices.

The trickiest part is to come up with policies that can inject new vigor into the sluggish economy, while stabilizing real estate markets underpinned by a heap of debt, and keeping consumer prices under control.

Regarding the people's livelihood, President-elect Yoon wants to increase government spending by up to 50 trillion won ($40.5 billion) to support pandemic-stricken small businesses, but at the same time, wants to curb soaring inflation that requires a tightening of monetary policy.

The supplementary budget could result in an excessive supply of money that could drive up inflationary risks deepened by the Ukraine crisis and cancel out the effect of a hike in benchmark interest rates.

With the real estate market, Yoon is geared toward easing lending regulations to let more people afford to buy their first homes. But such a move may possibly instigate speculation and a housing price bubble as witnessed in the past.

Fixing the relevant problems is critical, especially considering that the outgoing Moon Jae-in administration's devastating failure to bring down skyrocketing housing prices is attributed as a major reason for public disappointment toward Moon, and Yoon's presidential election victory last month.

Against this backdrop, Choo Kyung-ho told reporters, Sunday, the new government will “prioritize stabilizing the people's livelihood and consumer prices.”

He went on to say he was fully aware of the concerns over conflicting economic issues, adding, “We will counter inflation by using the benchmark interest rate and by tightening monetary policy over the long term.”

However, he did admit that the new government will have “limited options” in its policies, saying, “We are not living in the era where the government can fully manage and control inflation.”

Lee Sang-ho, head of the Korea Economic Research Institute's (KERI) economic policy team, said, “The dilemma faced by the incoming government is understandable.”

He pointed out Yoon's supplementary budget plan is associated with concerns over financial soundness, too.

The national debt is expected to reach 1,064 trillion won by the end of 2022 following 10 supplementary budgets worth more than 150 trillion won under the Moon administration.

Furthermore, the unfavorable situation can disrupt Korea from achieving an annual economic growth rate of 3.1 percent, and bring stagflation ― a toxic mixture of stagnant growth and rising inflation.

Consumer prices here grew 4.1 percent in March ― the fastest rate in a decade and above the central bank's inflation outlook of 3.1 percent.

As possible solutions, the KERI economist suggested three measures ― scaling down the 50 trillion won supplementary budget, financing the spending plan by restructuring the 2022 budget confirmed by the Moon administration and issuing treasury bonds if the first two measures turn out to be unrealistic.

The budget restructuring plan has so far been regarded as feasible, with Choo saying, “The government will examine the budget structure and public fees to stabilize consumer prices.”

Asked about concerns over housing regulations, Choo said the Moon government has taxed excessively on the holding and transfer of real estate among others in the name of preventing speculation.

However, he said Yoon's housing policy “to normalize the market” could stir up anxiety among homebuyers in the short term, adding, “We will keep track of the market and pursue policies in a detailed manner.”

Kim Je-kyung, a chief consultant at real estate agency Tumi, said Yoon was “on the track of lifting excessive housing regulations,” but added that his policy will prove to be effective only over the long term.

“I mean that it will be several years after the end of Yoon's five-year presidency when the housing market will stabilize on the one hand, while a housing bubble will not occur,” he said.

One of the measures being considered by the incoming government includes easing restrictions on redevelopment projects, which according to Kim, take at least 10 years to be completed.

The disgruntled groups of would-be homebuyers and homeowners over housing prices are scattered across the country, including ones in the affluent districts of southern Seoul and those in rural areas.

Taking this into account, Kim said focusing on a specific group could be an option for Yoon to succeed in his housing policy, adding, “You can't satisfy all people whose home prices vary depending on the regions they live in.”