Problems of the Reform Policy

The government and the ruling party should listen attentively to the president of Korea Development Institute (KDI) Kang Bong-Kyun’s criticism which emphasizes the necessity to recover the financial balance by restricting the increase of annual expenditures.

Although the curtailment of the increasing national debt came up as the main governmental task since the 1997 economic crisis, the government and the ruling party suggest the opposite. The Millennium Democratic Party (MDP) plans to file the supplementary budget of five trillion won using the tax-surplus for the purpose of the medical insurance deficit aid and the unemployment relief project.

Earlier this year during the budget compilation, MDP argued that because the increasing rate of budget is lower than the economic growth rate, the national budget was not the inflated budget. However, MDP’s plan to file the supplementary budget bill only after five months is far from its effort to recover the financial balance.

Although the government argues that the rate of the national debt in GDP is lower than the average rate of the OECD member countries, this kind of comparison is based on the standard of IMF, which includes the definite amount only. Last year the government spent 8% of the national budget in order to pay back the public funds and the interest of the national debt. Despite 134 trillion won, which was put into the public funds, the un-collected amount of the public funds remains as the national debt. If the government does not take a proper measure, the national pension and the medical insurance will only aggravate the national finance.

When the Korean economy faces the serious situation due to the downtrodden economy in the U.S. and Japan, the government cannot just sit idle without a counter-plan.

It is questionable whether this is the crucial time to file the supplementary budget.

The financial crisis of the medical insurance was due to the government unreasonable increase in the medical expenses and the price of prescription in order to appease both doctors and pharmacists. The medical insurance expense should be made within the insurance fees paid by the insurance policyholder. The medical insurance can easily create the black hole in the national finance unless the increased medical expense is readjusted and the examination of the unfairly claimed bill is strengthened.

Since the unemployment relief budget is already included in the national budget, it can be easily targeted as a pork-barreling plan. The public pension, such as the national pension and the government employee pension, can be a burden to the national finance if the structure of the ‘low-pay’ and the ‘high-allowance’ is not readjusted.

As KDI has advised, it is important for the government to stabilize the consumer price and to reduce the national debt by improving the financial income and expenditure in order to prepare for another economic crisis.