Outgoing, incoming gov'ts clash over key economic policies

Won Il-hee, deputy spokesperson of the presidential transition committee, gives a press briefing at the committee office in central Seoul, March 29. The committee then announced plans to take step-by-step measures against a set of policies introduced by the Moon Jae-in administration on housing contracts, which the incoming Yoon government wants to overturn. Yonhap

Moon's signature Korean New Deal on verge of being scrapped

By Yi Whan-woo

The outgoing and incoming administrations of President Moon Jae-in and President-elect Yoon Suk-yeol are increasingly on a collision course over major economic policies, as the transition committee is materializing plans to overturn several of Moon's core policies that Yoon deems impractical.

The conflict between the two has been foreseeable to some extent, considering that Yoon prioritizes market-driven economic policies, as opposed to Moon's income-led growth premised on active government intervention.

The transition committee is geared toward scrapping or scaling down Moon's core economic projects day after day, in a bid to implement Yoon's economic vision, characterized by anti-expansionary fiscal policy and soft regulations.

Among the targeted projects are the Korean New Deal aimed at fostering digital technology and green energy to revitalize the pandemic-hit economy, as well as a package of measures that protect tenants from being pushed around by landlords amid soaring housing prices.

Introduced in 2020, the Korean New Deal has been Moon's signature economic roadmap, under which 220 trillion won ($181.6 billion) will be invested through 2025.

The project was not mentioned at all in a set of guidelines for the 2023 budget plan announced by the Ministry of Economy and Finance, March 29, stoking speculation that it may be getting scrapped.

The multi-trillion-won project requires significant government spending, including 600 billion won this year.

The expenses were believed to be burdensome to the incoming Yoon administration, which desperately seeks to finance 50 trillion won in relief aid for pandemic-hit small business owners.

The president-elect has wanted to make such financing possible through restructuring the budget, instead of issuing government bonds as the outgoing government has done, though that led to snowballing government debt.

"The 2023 budget plan is linked to the new government's economic policy direction, and accordingly, the ministry consulted the transition team in advance," said Choi Sang-dae, the deputy minister of the ministry's budget office.

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki, Moon's key economic aide, expressed his dissent with his own ministry's decision.

"Investment into the Korean New Deal using national funds should continue," he said, Wednesday. He noted the assessment by the International Monetary Fund (IMF) in a report released on March 29, in which it noted that Korea's "policy focus will need to shift to structural reform priorities centered around the Korean New Deal to reinvigorate potential growth and foster greater inclusion."

Sources say the ruling Democratic Party of Korea (DPK) may not cooperate with the incoming government in the case that the latter tries to finance the 50 trillion won through budget restructuring. Instead, it may issue the equivalent amount of bonds with approval from the National Assembly.

In the case of policies concerning tenants' rights, the transition team announced on March 29 that it will discard or scale down three disputed policies introduced by the Moon administration in 2020.

Under Moon's policies, tenants who live on a two-year jeonse contract, the most common form of housing contract in Korea, have the right to extend their contracts for another two years. Jeonse is a Korean form of rental housing in which the tenant pays a lump sum that is returned upon moving out instead of monthly rental payments.

To enhance tenants' rights, current policy also puts a 5-percent cap on increasing jeonse deposits or monthly rents when contracts are renewed. Plus, contract details must be reported to the local government to ensure transparency in housing deals.

The measures, however, had some side effects, including a noticeable reduction of the number of rental homes permitting jeonse payments, which pushed housing prices higher.

"We are committed to dealing with the three policies on rental housing regardless of the circumstances, to normalize the housing market," transition committee deputy spokesperson Won Il-hee said.

"Scrapping and scaling down the policies are among our options, as we will consider step-by-step measures to tackle the relevant problems."

The transition team's move brought immediate criticism from the DPK, with floor leader Yoon Ho-joong calling it "a grave mistake."

"It is messing up the whole thing to correct minor errors," Yoon said.

It is speculated that the disputes between the outgoing and incoming governments may flare up, as Yoon wants to change other key policies the Moon administration instituted, such as the 52-hour workweek cap and the workplace disaster law that holds business owners accountable for safety lapses resulting in accidents.