[The Editors' Verdict] Unprecedented Health Crisis: Where Should the Money Go?

Due to concerns over the economic downturn caused by the novel coronavirus infection (COVID-19), stock prices have plummeted across Asia, Europe, and the United States. In response, central banks around the world have been cutting benchmark interest rates and expanding liquidity to inject money into the economy. The U.S. Federal Reserve (Fed) made a surprise decision on Sunday the 15th to cut the benchmark interest rate by 1 percentage point and announced a quantitative easing program worth $700 billion (approximately 850 trillion won). The Bank of Korea also hastily held an emergency Monetary Policy Committee meeting on the afternoon of the 16th and lowered the benchmark interest rate by 0.5 percentage points. As a result, Korea’s benchmark interest rate fell to 0.75%, marking the first time the country has entered an era of near-zero interest rates. Despite these measures, the U.S. could not avoid a Black Monday, and the Korean stock market also experienced a sharp crash.

Immediately, voices have emerged saying, "Since it has been proven that monetary policy has its limits, fiscal policy must be used to respond to the crisis." Even before the supplementary budget of 11.7 trillion won prepared by the government passed the National Assembly, talks of a second supplementary budget have already begun. President Moon Jae-in stated at the Cabinet meeting held on the 17th that "the supplementary budget is not the end but the beginning," urging that economic measures beyond the supplementary budget must be introduced. He also emphasized that the supplementary budget alone is grossly insufficient and that extraordinary support measures must be additionally devised at a groundbreaking level.

It is natural that the Blue House and the government regard the current situation as an economic emergency and prepare countermeasures. Experts are concerned that the economic crisis caused by COVID-19 will be worse than the 2008 financial crisis. The 2008 financial crisis, triggered by the bankruptcy of Lehman Brothers in the U.S., was able to recover quickly because the real economy remained intact. However, now production and consumption have frozen due to fear of the infectious disease spreading, and concerns about the contraction of the real economy have spilled over into the financial sector, creating a complex crisis involving both the real economy and finance. The bigger problem is the uncertainty about when this situation will end, which has pushed the anxiety of economic agents to the extreme. COVID-19, which started in China, has spread through Asia and is now expanding to Europe and the United States.

In a situation where uncertainty is heightened like this, it may be natural that the financial markets did not react even though central banks around the world simultaneously implemented monetary easing measures. The fundamental cause of the crisis?the infectious disease?is still rampant, so no matter how much central banks inject money, the financial market’s response is ineffective.

This is no different even with fiscal policy. As consumption shrank due to COVID-19, the government introduced a measure to issue consumption coupons worth 2 trillion won. Some ruling party members argue that even this is insufficient and that cash support should be increased. However, while one side campaigns for refraining from going out and social distancing to prevent the spread of the infectious disease, issuing consumption coupons to stimulate the economy on the other side is contradictory.

The fundamental solution to the economic crisis caused by COVID-19 is, after all, to end the infectious disease early, and fiscal resources must be concentrated on this. If the quarantine and medical systems collapse, uncertainty and anxiety will intensify further, and the economic crisis will deepen.

Support for affected companies should also not be spared. Operating funds must be provided to companies pushed to their limits so they can overcome the current situation and maintain employment for their workers. Only then can consumption and production return to normal after the crisis ends, allowing the economy to recover quickly. Distributing consumption coupons or cash to those who have already lost their jobs will not revive the economy.

With the world locking down, the aviation, travel, and accommodation industries face the risk of mass bankruptcies. Trade contraction has put export companies in crisis. As consumption freezes, self-employed individuals and small merchants are enduring a harsh winter. If these businesses collapse, it will immediately lead to financial insolvency, resulting in an even greater crisis.

This content was produced with the assistance of AI translation services.