Government Should Be Cautious against Populist Pump Priming Measures

The YS Government’s Crucial Phrase was Globalization-

In November 1994, then President Kim Yong-sam announced the “Sydney Plan” in Australia. This was a globalization plan to accelerate internalization and market opening to play a role that corresponds with Korea’s economic volume in the international community.

Since 1995, the third year under his presidency, the crucial phrase of the government’s economic policy was “globalization.” According to the direction, liberalization of the foreign exchange market was quickly implemented. The country joined the Organization for Economic Cooperation and Development (OECD) in 1996 on the wave of the “globalization drive” without in-depth discussions regarding loss and gains from the entry.

However, many point out that the government almost failed to improve practices that sincerely needed globalization, such as management on loans, government-run finances of financial institutions and cozy relationship between business and politics, and that it excessively pushed ahead with a capital market opening, thus causing the financial crisis.

Business administration professor Sunwoo Seok-ho of Hongik University said, “The government was preoccupied with joining the OECD and the entry into the rank of advanced nations at that time, while failing to pay attention to restructuring businesses.”

The DJ Government Caused Side Effects of an “All-out” Stimulus Package-

The Kim Dae-jung administration, which was launched amid the financial crisis, earnestly started to introduce stimulus packages since 1999. As a result, the economic growth rate, which nose-dived to minus 6.9 percent in 1998, the first year of the Kim Dae-jung presidency, rose to 9.5 percent in 1999, coupled with the export boom resulting from the Korean won depreciation. Also, the balance of international payments was also improved by a great margin.

However, the problem was that the government tried to speed up too much. The DJ administration adopted massive pump priming measures through expanding the use of credit cards in 1999 and 2000, the second and third years under the DJ presidency, starting with abolition of ceiling of cash advance service amount. For several years afterward, the credit card market rapidly expanded. Nonetheless, the economic growth rate decreased to 3.8 percent in 2001, which led the government to introduce another stimulus policy such as encouraging consumption.

That, in the end, laid the fertile ground of moral hazard, producing millions of credit delinquents. Moreover, the pain that the entire economy suffered in the process of the bubble burst continues to this day.

The Conditions of a Successful Third Year in Presidency-

Experts say that the most important thing is to exclude political variables in economic policies.

Executive director Oh Moon-seok of LG Economic Research Institute said, “Under the five year single-term presidency, an incumbent president tends to consider political aspects such as the possibility that the ruling camp will produce the next president, when it’s approaching to the end of tenure,” adding, “As immoderate policies always cause side effects, it is crucial to avoid making such policies.”

Oh continued, “It is a step in the right direction that the incumbent government sets revitalization of the economy as the direction of its policies in its third year in power,” stressing, “But, it should be careful enough to avoid an excessive pump priming and resulting ‘overheating’ which we saw in the past.”

Jong sik Kong kong@donga.com