(EDITORIAl from the Korea Times on Feb. 11)

Revenge of debt

Watching the spread of the financial crisis from the United States to Europe, one
can learn a common lesson ??? live within your means. If the U.S. subprime crisis
stemmed in part from a mortgage-backed spending spree, the Southern European debt
crisis was caused by governments' fiscal profligacy to maintain the welfare
system: Reports say the income of some Greek retirees exceeded 90 percent of
their pay while in active duty.

It is small surprise then this country has maintained its fiscal health,
especially considering Koreans' relative frugality, with probably the sole
exception of their spending on education, as well as the nation's sparse social
safety network.
Statistics show Korea's ratio of state debt to its gross domestic product stands
at 35.6 percent, less than half of the G20 average of 75 percent. Even the
nation's total external liabilities, which also include debts by
quasi-governmental agencies and state enterprises, can hardly be called
immoderate by falling short of the OECD member's average level.
Of course, the nation is not without some reasons for concern, such as the
breakneck speed of the debt's growth, which almost doubled over the past four
years, in large part because of large-scale public works intended to stimulate
the economy.
Korean policymakers will need to learn from the failures of their Japanese
counterparts, who poured a tremendous amount of governmental budget into massive
infrastructure construction to jumpstart the economy during the notorious ``lost
decade" but had to see debt snowball to the world's highest level while the
economy hardly rebounded, in this regard. These should serve as a grim reminder
of how non-essential public works ??? such as the ``four-river projects" and
building all kinds of special cities in Korea's case ??? can weaken a country's
fiscal health.
The neighboring country's lesson does not stop at an infrastructure fiasco.
Japan's external liabilities swelled in part due to its debt-financed welfare
programs, particularly in a rapidly-aging society, which ironically shows how
huge the burden would be on Korea, which is aging as quickly as Japan but whose
welfare network is no match for the world's second-largest economy.
Moreover, this country has a fiscal demand for a special event that no other
countries have ??? national reunification.
All told, Korea can hardly afford to remain complacent about the relatively sound
fiscal situation, so it was right for the government to decide to further squeeze
spending while expanding revenue sources by ending various tax breaks ahead of
schedule and ferreting out habitual tax delinquents such as high-income
professionals.
Also commendable was the finance ministry's decision to change its debt
compilation by including liabilities of state firms and other semi-governmental
institutions.
All this makes a good start, but the government should go further by, for
instance, doing away with tax cuts for big businesses and wealthy individuals
that have little to do with stimulating the economy as well as sharply reducing
spending on the controversial public works programs.
Policymakers are racking their brains over the main theme of the G20 summit
scheduled for November in Seoul. At a time when the whole world is smarting from
the adverse effects of blind globalization and returning to national solidity,
the host Korea may well put forth the subject of fiscal soundness in relation to
financial safety nets.
(END)