Posted October. 04, 2005 03:07,
Cheong Wa Dae argued yesterday that the size of Koreas national debt is relatively small compared to other countries on its website.
However, we see such an argument as self-complacent.
National debt is the amount of money the government borrows from foreign countries and the private sector. As of the end of 2004, the national debt stood at 203 trillion won, four times the 50 trillion won debt level at the end of 1996, just before the financial crisis. The amount increased by 70 trillion won from at the end of 2002 (133 trillion won), right before the Roh administration took office.
Unless the government dramatically changes the direction of its policy, the amount is expected to reach 248 trillion won by the end of this year, and over 300 trillion won by 2008.
Cheong Wa Dae argues that Koreas debt-to-GDP ratio is only 26.1 percent, while the OECD average is 76.8 percent. However, we should note that the amount is rising very fast and that it creates a huge burden for fiscal operations. Korea is facing a lot of uncertainties that the advanced countries do not: security costs, potential unification costs, and a crisis in its social safety net. As a result, it should minimize the national debt.
Cheong Wa Dae also argued that the non-financial debt that the people should pay in taxes amounts only to 78 trillion won. However, the non-financial amount also has risen very fast, by 81 percent, from 43 trillion won in 2002, which means that the amount a Korean should pay increased from 900,000 won to 1.6 million won.
The Roh administration pins the blame for the drastic increase in national debt on former governments that converted public funds into national bonds. However, what matters most is whether the incumbent administration has the capability of and the commitment to reducing national debt. It is unnerving to see the government running fiscal deficits while expanding budgets for inefficient areas such as welfare, and saying that there is nothing to worry about. The government and the ruling party should actively discuss ways to achieve balanced finances instead of criticizing the proposal by the Grand National Party to cut the budget for next year by about nine trillion won as irresponsible.