ID :
53019
Tue, 03/31/2009 - 08:06
Auther :
Shortlink :
https://www.oananews.org//node/53019
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(EDITORIAL from the Korea Times on March 31) - Soaring state debt: Long-term plan needed to ensure fiscal soundness
The global financial and economic crisis has taken its toll on South Korea's fiscal soundness as the government spends more on massive stimulus packages.
For now, it is difficult to ensure a balanced budget in the foreseeable future. In
fact, the nation has to suffer from a snowballing budget deficit in the aftermath
of the unprecedented economic turmoil. But the problem is that state debt will
continue to rise, further aggravating the fiscal health of the nation and hurting
its international credibility.
According to the Ministry of Strategy and Finance, state debt is expected to jump
19 percent to 366.9 trillion won ($269.6 billion) this year from 308.3 trillion
won in 2008. This means that the nation's per-capita debt will increase from last
year's 6.34 million won to 7.53 million in 2009. The total state debt has
quadrupled over the last 10 years. The upsurge was attributed to an increase in
the issue of state bonds, mostly foreign currency stabilization bonds. Aside from
this, state debt increased due to the issuance of government bonds designed to
repay public funds that were injected into troubled financial institutions
following the 1997-98 Asian financial crisis.
The government has also rushed to issue the stabilization bonds since the
outbreak of the global financial crisis last September in a bid to prevent the
value of the local currency from tumbling against the U.S. dollar. President Lee
Myung-bak has also cut taxes and taken a series of economic stimulus measures
since his inauguration. The Lee administration increased its 2009 budget by 10
trillion won in November amid the economic slowdown. And last week, the
government also announced a 29 trillion won extra budget to stimulate the
moribund economy and create 550,000 jobs.
It is inevitable for the government to sharply increase fiscal spending to
jumpstart the economy. We have to admit that the nation has no choice but to
mobilize the state budget for large-scale stimulus packages in the face of the
worst crisis since the Great Depression. But this does not necessarily mean that
the Lee administration is allowed to run the risk of excessive indebtedness and
fiscal collapse.
Whenever it presents an extra budget bill or issues state bonds, the government
usually stresses that the country's debt level is much lower than other members
of the Organization for Economic Cooperation and Development (OECD). The ratio of
state debt to gross domestic product (GDP) climbed 38.5 percent this year from
last year's 32.5 percent. The ratio doubled in a decade. Of course, the figures
are well below the OECD average of 82.8 percent.
But the debt problem is not a thing to be overlooked. Policymakers are well aware
of the seriousness of this issue. A surge in state debt will inevitably restrict
the government's fiscal policy options due to a growing pressure to repay its
debt. In a nutshell, excessive state debt could create a vicious cycle of a
chronic budget deficit, the issuance of more state bonds and fiscal failure,
bringing about a much more serious crisis than the current one. Thus,
policymakers should set out a long-term plan to reduce the debt level and
maintain fiscal soundness
For now, it is difficult to ensure a balanced budget in the foreseeable future. In
fact, the nation has to suffer from a snowballing budget deficit in the aftermath
of the unprecedented economic turmoil. But the problem is that state debt will
continue to rise, further aggravating the fiscal health of the nation and hurting
its international credibility.
According to the Ministry of Strategy and Finance, state debt is expected to jump
19 percent to 366.9 trillion won ($269.6 billion) this year from 308.3 trillion
won in 2008. This means that the nation's per-capita debt will increase from last
year's 6.34 million won to 7.53 million in 2009. The total state debt has
quadrupled over the last 10 years. The upsurge was attributed to an increase in
the issue of state bonds, mostly foreign currency stabilization bonds. Aside from
this, state debt increased due to the issuance of government bonds designed to
repay public funds that were injected into troubled financial institutions
following the 1997-98 Asian financial crisis.
The government has also rushed to issue the stabilization bonds since the
outbreak of the global financial crisis last September in a bid to prevent the
value of the local currency from tumbling against the U.S. dollar. President Lee
Myung-bak has also cut taxes and taken a series of economic stimulus measures
since his inauguration. The Lee administration increased its 2009 budget by 10
trillion won in November amid the economic slowdown. And last week, the
government also announced a 29 trillion won extra budget to stimulate the
moribund economy and create 550,000 jobs.
It is inevitable for the government to sharply increase fiscal spending to
jumpstart the economy. We have to admit that the nation has no choice but to
mobilize the state budget for large-scale stimulus packages in the face of the
worst crisis since the Great Depression. But this does not necessarily mean that
the Lee administration is allowed to run the risk of excessive indebtedness and
fiscal collapse.
Whenever it presents an extra budget bill or issues state bonds, the government
usually stresses that the country's debt level is much lower than other members
of the Organization for Economic Cooperation and Development (OECD). The ratio of
state debt to gross domestic product (GDP) climbed 38.5 percent this year from
last year's 32.5 percent. The ratio doubled in a decade. Of course, the figures
are well below the OECD average of 82.8 percent.
But the debt problem is not a thing to be overlooked. Policymakers are well aware
of the seriousness of this issue. A surge in state debt will inevitably restrict
the government's fiscal policy options due to a growing pressure to repay its
debt. In a nutshell, excessive state debt could create a vicious cycle of a
chronic budget deficit, the issuance of more state bonds and fiscal failure,
bringing about a much more serious crisis than the current one. Thus,
policymakers should set out a long-term plan to reduce the debt level and
maintain fiscal soundness
