[Editorial] Adverse Effects of Borrowing-Fueled Economic Recovery

The Uri Party is demanding the government to issue seven trillion won in bonds to expand the budget for next year. It said the issuance of bonds is aimed at revamping spending as part of its electoral pledges. Indeed, it is urgent to turn around the economy. However, a fiscal expansion that could leave the public reeling under debt is not a fundamental solution; it has more drawbacks than advantages.

All in all, the country’s finances are not sound enough to handle additional borrowing. The government debt, which stood at 60 trillion won in 1997, rose to more than 100 trillion won in 2000, and is projected to be more than 200 trillion won this year. The volume of new government bonds that should be issued in the next two years to repay the outstanding loan principle is expected to be 2.4 trillion won. In this way, debt will create more debt, sending the finances into a chronic deficit.

The ruling party is talking about the new issuance as if it is spending its own money; the principle and interest of the government bonds will be paid by the two major taxpayer groups—the public and corporations. Accordingly, it will reduce room for civilian investment and spending and thereby put a damper on the economy. The adverse effects and aftershock of a fiscal expansion will likely be bigger than its advantages. Uri Party lawmakers should take the will of voters who elected them more seriously to watch out for over-taxation and budgetary waste by the government.

The balance sheet aside, confusion over policy is not a small issue at all. At a speech by President Roh to celebrate the inauguration of the 17th National Assembly, President Roh said the reasons for the current economic agonies lied with the measures taken by the previous government to turn around the housing market and spending. While the president argues that fiscal stimuli will destroy the economy, the ruling party demands a short-term policy that will result in an increase of debt that the public should pay. The public and corporations are bound to be in a quandary.

What is urgent in turning around the economy is not a fiscal expansion. The elimination of policy uncertainty, which is created in the disharmony between the government and the ruling party, the lifting of regulations restricting corporate activity, and a market controlled by law and principles are more urgent. A change of heart by the government and the ruling party would make them possible. Why do they want a measure that will further agonize taxpayers and shake the financial soundness of the country?