ID :
208425
Wed, 09/21/2011 - 03:14
Auther :

Debate on debt : Korea should not become second Japan

(EDITORIAL from the Korea Times on Sept. 21)

Debate on debt
: Korea should not become second Japan

To be fair, Korea is not the ``Republic of Debt,??? as some local dailies exaggerate. The nation???s debt accounts for less than 40 percent of its GDP, far lower than the U.S.???s 100 percent, let alone Japan???s 200 percent.
There are factors in the debt debate, however, which do not allow Koreans to remain optimistic about their country???s fiscal health. If the nation, mainly the government, fails to properly deal with these problems, the media outlets??? warning could turn into a self-fulfilling prophecy.
First of all, Korea???s national debt ??? liabilities incurred by the public sector, private businesses and households ??? is increasing too fast. According to a report submitted to the National Assembly, the three main economic players??? combined debt has increased by 881 trillion won ($775 billion), or 36.7 percent, since President Lee Myung-bak took office.
Even considering the fiscal stimulus needed to pull out of the 2008 financial re debts of state enterprises due mainly to massive public works and lax management. Private economists say if the debts of these public corporations are included in national debt ??? as the IMF recommends ??? Korea???s debt-to-GDP ratio will soar to 70 percent.
Household debt has long been the ticking time bomb threatening the domestic financial system. Particularly disturbing is the families??? ever-worsening debt repayment capability, which has gone below the level of their U.S. counterparts in 2008. Little wonder economists call household debt the Korean version of a subprime crisis. Running a risk of jump in the logic, the corporate debt in the 1997-98 Asian financial crisis have been transferred to households now through a decade of business-first government policies.
Fiscal hawks are right in stressing austerity, but wrong in calling for squeezing social security and other public welfare programs. President Lee was also right when he emphasized fiscal balance, but wrong when he criticized politicians??? competitive welfare pledges as election populism.
It was his economic policy over the past three-and-a-half years, called ``MB-nomics??? ??? marked by export-oriented expansion and large-scale public works ??? that caused jobless growth, falling income and swelling debt for numerous individuals as well as state companies.
Lee should look no further than Japan. When the ruling Democratic Party of Japan (DPJ) recently renounced various welfare promises made during campaigns, Korean conservatives call it the inevitable end of populist policies. But the DPJ???s mistake lay not in its campaign slogan of ``from concrete to people,??? but in forgetting Japan???s state coffers were empty. What depleted them was the DPJ???s predecessor, the Liberal Democratic Party, which brought about ``lost two decades??? of jobless growth by minimizing public welfare programs and trying to bolster the economy through massive public projects.
When the social safety net is loose, people don???t spend, which delays the economic recovery further, squeezes government revenue, and pushes up national debt in a vicious cycle.
If Korea is to avoid following in the neighboring country???s footsteps, the government should reduce public projects and expand public welfare, preferably in ways to create more jobs, not the other way round.
(END)

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