‘GHnomics’ shaping up slowly

President-elect vows to focus on addressing debts, welfare issues

President-elect Park Geun-hye speaks during a meeting of the presidential transition team on economic issues at the Korea Banking Institute building in Samcheong-dong, Seoul, Sunday. / Yonhap

Change and happiness were the watchwords of Park Geun-hye’s presidential campaign. But converting the huge hopes and expectations she has generated into practical policies will be a difficult challenge for the incoming Korean president set to inherit an economy crippled by the global downturn, unemployment and historically-high levels of household debt.

There is about a month left of Lee Myung-bak’s presidency before Park’s inauguration in front of the National Assembly on Feb. 25. Park has hit the ground running since the election, eager to kill talk of a power vacuum and desperate to display her leadership qualities by calling the shots through a high-profile transition team.

If the purpose was to show the public that she has a plan and a strong team of policymakers ready to take over at the end of the transition period, it could be said that the results have been mixed.

After bumbling through its first month, it seems that the transition team ― renting out the Korea Banking Institute (KBI) building near Cheong Wa Dae ― is finally beginning to merge broad-brush slogans with specifics.

The discussions, however, still aren’t advanced enough to give shape to Park’s economic policy. And they won’t be until the team of experts provide a convincing answer to the most dreaded question: Will the Park administration be able to spend like a big government and tax like a small one?

On her vast to-do-list, Park claims that defusing the problems of personal debt will come before everything else. This also happens to be the area in which she is creating most controversy: For critics, including outgoing Financial Services Commission (FSC) Chairman Kim Seok-dong, her idea of using taxpayers’ money to let the most desperate borrowers off the hook runs against the limits of acceptability.

Unfazed with such concerns, Park intends to push ahead with the plans to try and implement them with almost immediate effect.

An 18 trillion won “national happiness fund’’ will be created to reduce the debt servicing burden of more than 3.2 million borrowers in most desperate need of help. They will have their liabilities shaved by 50 to 70 percent.

Park’s government will also raise the old-age pension to 200,000 won a month. Currently, people over 65 are receiving 97,000 won a month except for the richest 30 percent who don’t receive any pension. Park not only plans to double the payment but also convert it into a universal benefit.

The changes will take hold during the first half of the year, according to officials from the transition team. At around one quadrillion won, the household debt mountain now matches an entire year’s gross domestic product (GDP) and is posing a threat to the nation’s financial stability.

“If I make promises, it will be your responsibility to fulfill them…The policies on household debt will have to come into effect immediately once the new government starts,’’ the committee quoted Park as saying during a discussion on economy-related policy.

“This is not simply about (the government) spending money. To revive the economy, (individuals) need to be freed (from household debt). However, we must be assured that the money goes to individuals who have a willingness to get back on their feet eventually and we need standards and processes to sort them out from the rest.’’

Park also said that the rewriting of the laws on old-age pensions will have to happen as “soon as possible.’’

“It will take time to execute the policies. We can’t let time pass carelessly,’’ she was quoted as saying.

The household debt fund will be raised by bonds issued from the Korea Asset Management Corporation’s (KAMCO) credit recovery fund and a surplus of its delinquent loan fund. This has Park arguing that taxpayers won’t be additionally burdened, apparently a misrepresentation of banking on the public’s lax understanding of bonds.

Aside from the money problem, the most obvious fear is moral hazard: There is no better way to encourage delinquencies than a government starting to pay for individual liabilities because those who actually manage to repay their borrowings would be left asking, “What was I thinking?’’

It’s also questionable whether 18 trillion won could even act as a band aid when the amount of unpaid home-backed loans is estimated to be at around 600 trillion won combing the lending from commercial banks and secondary lenders.

“There is no argument that the household debt situation is damning, but Park is sending the wrong signals,’’ said a senior official at a major commercial bank, who didn’t want their employer to be named.

“Household debt, mainly tied to property-related borrowings, is first and foremost a problem between the borrower and creditor, which in this case, is the bank. Some would argue that the problem has been aggravated to a point where normalized processes can’t work as prescribed but I would argue it’s still a mistake to take the problem out of the borrower-creditor realm and pour taxpayers’ money into it.’’

Despite sharing Saenuri Party membership, Park has put in Herculean efforts to separate herself from the incumbent President, denouncing Lee for growth-first polices she believes have worsened inequality, social dysfunction and made the economy more vulnerable to global conditions.

She instead has touted herself as the flag carrier of a new breed of conservative politics that will better protect working-class interests and find a way to tackle inequality without hurting growth.

However, the inability to support her centralist declaration with credible plans has resulted in an electorate that wants it both ways ― showered with benefits but exempt from taxes ― and now a potential identity confusion for the conservatives in power.

Park’s other welfare-related campaign pledges involve strengthened state spending on childcare and public education and expanding healthcare coverage. These are all part of Park’s ambitious and largely unspecified plan to increase the proportion of middle-class families to include 70 percent of all households during her five-year presidency.

This would obviously require improving the living standards of families on the wrong side of the widening wealth gap. To smooth the process, Park says her government will have to provide a financial jolt of 135 trillion won, or 27 trillion won per year.

Critics say that coming up with 135 trillion won without raising taxes is sheer fantasy but, at least for now, the Saenuri Party insists it can prove them wrong. <The Korea Times/Kim Tong-hyung>