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Guardian of the coffers

June 07,2019
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President Moon Jae-in, center, Prime Minister Lee Nak-yon, left, and Finance Minister Hong Nam-ki, right, head to a cabinet meeting at the Blue House on March 14. [JOINT PRESS CORPS]
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Yi Jung-jae
The author is a columnist at the JoongAng Ilbo.

The Ministry of Strategy and Finance calls itself the “guardian of the national coffers.” The head of the ministry upholds the tradition of safeguarding the national coffers regardless of who is in power.

A recent example was Bahk Jae-wan, finance minister under President Lee Myung-bak. He prioritized fiscal balance with full eagerness. He even refused president-elect Park Geun-hye’s request to issue additional government bonds to finance her campaign promise to boost social welfare. In January — before Park was inaugurated — Bahk reminded everyone that the ministry was “destined” to keep to the principle of “balanced finances.”

He did not waver even when the ruling party head pressured him. The Asian Wall Street praised Bahk for having the “guts to stand up to such economic populism” and cheered him for “injecting some much-needed good sense” at a time when the United States and Europe were spending a lot on welfare programs.

The Korean Finance Ministry’s guardian role has a long history. There can be many ways to fend off political pressure and guard against reckless spending. The ministry’s annual budget has a section named “unused budget.” It is the part of the budget that was earmarked but not spent. It is often the result of bargaining with lawmakers. The ministry agrees to spending demanded by a lawmaker for his constituency in return for the lawmaker’s promise to vote for its budget plan. But the earmarked budget is not spent.

It is a kind of compromise between a lawmaker and the ministry. Lawmakers can go back to their constituencies and declare they have won the spending plan, while the ministry gets its annual budget bill passed in time. The balance reached nearly 10 trillion won ($8.4 billion), or 4 percent to 5 percent of the total annual budget under the Lee administration and when Bahk was in charge of public finances.

The legacy remained intact under President Moon Jae-in. Shim Jae-min, a former junior official at the Finance Ministry, revealed that the budget department was asked by the new government to issue 4 trillion won in government debt and raise the debt share against the gross domestic product (GDP) under the impeached President Park Geun-hye to more than 39.4 percent.

His whistle-blowing stemmed from the ministry’s pride in safeguarding the public finances and their integrity. But the administration filed criminal charges against him. Last month, President Moon bluntly asked Deputy Prime Minister and Finance Minister Hong Nam-ki about the grounds for sticking to the 40 percent threshold against the GDP. In two weeks, Hong said the country’s debt ratio against the GDP was estimated to go up to 45 percent, or 971 trillion won, by 2022. His estimate was stretched by more than 70 trillion won from the mid-term fiscal outline last month that projected 898 trillion won in debt, or 41.6 percent against the GDP.

The national coffers would be in jeopardy if its guardian loses his sense of dignity in the job. Hong should have told his boss that overspending was unwise at a time when exports and growth were slowing. He should have warned that the country must prepare for the aging of its population and unification. If the government squanders billions of dollars to increase public-sector employees and social welfare, the country could see an unravelling of its public finances.

But Hong was more concerned with keeping his job. He bent his principles on supplementary budgets, a stock trading tax and tax breaks for credit card spending upon the demands of the president and ruling party. Even some ministry officials grumble that Hong is kowtowing to the president.

Hong is the last defense of our fiscal integrity. The national coffers are at risk. Coincidentally, the Bank of Korea recently revised its guidelines to calculate the GDP, resulting in an arbitrary rise in the figure by 111 trillion won and a fall of government debt against the GDP to 35.9 percent from 38.2 percent. Let’s just hope that the Finance Ministry won’t allow such fiddling forever.

JoongAng Ilbo, June 6, Page 26