[Special Inaugural Interview] Jin Nyeom: "Don't Obsess Over 0.1% Growth Rate, Focus on Strengthening Economic Structure"

by Ju Sangdon

Published 15 Jun.2020 11:10(KST)

Former Deputy Prime Minister Jin Nyeon Leading the Charge to Overcome the Debt Crisis

IMF Crisis Amid Global Economic Boom

A Situation Where Growth Was Possible If Overcome

Now a Global Crisis, a State of Chaos

The Economic Order Will Completely Change After the Pandemic

The Government Should Not Interfere Deeply in the Digital New Deal

Should Only Create an Environment and Play the Role of 'Cheerleader'

Emphasize the Role of Fiscal Policy Especially in Difficult Times

Even If National Debt Ratio Rises, If It Is Directed Toward Profitable Outcomes, It Is a Successful Investment

The Problem Is Spending on Wasteful Areas

Regarding the Recent Hot Topic of Corporate Reshoring, a Business-Friendly Environment Is More Urgently Needed Than Subsidies

The Rest Should Be Left to the Companies

Former Deputy Prime Minister for Economic Affairs Jin Nyeom is being interviewed on the 9th at the Chosun Hotel in Jung-gu, Seoul. Photo by Jang Jin-hyung aymsdream@

The entire world is experiencing an unprecedented crisis called the novel coronavirus disease (COVID-19). This crisis, never before encountered, is shaking not only the Korean economy but the global economy as a whole. While overcoming the infectious disease crisis and the 'post-COVID' era have become global agendas, it is impossible to predict when the COVID-19 situation will end, and economic recovery cannot be viewed optimistically. However, we have the resilience to overcome the International Monetary Fund (IMF) foreign exchange crisis. Former Deputy Prime Minister for Economic Affairs Jin Nyeom was the leading figure in overcoming that unprecedented crisis at the time. On the 9th, we met him at a hotel in Seoul to hear his views on the direction the Korean economy should take after COVID-19.

- You played a significant role during the IMF foreign exchange crisis. How is the current COVID-19 crisis different from the previous one?

▲ The foreign exchange crisis and the 2008 financial crisis can be seen as types of liquidity crises. The foreign exchange crisis was the biggest challenge for our economy since the Korean War. In 1998, Korea's economic growth rate fell by more than 5%, and unemployment exceeded 2 million. Numerous small and medium-sized enterprises went bankrupt, and about half of the large corporations received government support. However, unlike now, the global economy was generally in good shape at that time. If only we overcame it well, there was a possibility of riding a growth trend and achieving a 'V-shaped' recovery. But now, it is a global crisis, a state of chaos. Globally, consumption in the real economy is declining, and investment is not happening. More importantly, during the international financial crisis, international cooperation among economic leaders worked, but now, the U.S. and China’s hegemonic competition is intensifying, and international cooperation has completely collapsed amid the COVID-19 pandemic.

- What economic policies were implemented during the IMF crisis?

▲ Overcoming the foreign exchange crisis was very difficult, but we repaid the $19.5 billion IMF bailout funds, which were planned for five years, ahead of schedule, and the economy made a V-shaped recovery. Of the bailout funds, 170 trillion won was used to resolve financial and corporate insolvencies. At that time, there was a plan to hand over a surplus-oriented stance to the next government. Financial restructuring, reforms of the four major social insurances, and fostering venture industries as new growth engines in response to the knowledge and information age were promoted. Although these policies were criticized as 'money-draining drains' at the time, those companies have grown into large corporations today. Also, during the IMF recovery process, welfare issues were addressed. The Basic Livelihood Security Act was introduced in 1999. The integrated health insurance system, considered one of the best in the world, was also established then. This was possible because welfare policies were based on 'productive welfare.' If jobs are created for working people, job-related welfare is necessary.

- How should Korea proceed after COVID-19?

▲ The global economic order will be completely changed after COVID-19. How we respond to these changes is our task. Fortunately, during the COVID-19 response and recovery process, we were recognized as a model country, which has given us pride. We should use this pride to strengthen the resilience of our economy. We must focus on strengthening our economic structure. While it is important to support those currently facing difficulties, medium-term efforts require various policy experiments to venture into 'uncharted territory.' Recently, there have been criticisms that Korea's economic structure has deteriorated and its resilience to crises has weakened. We need to think about how to restore and revive it. We must transcend ideology and factions, think together, and unite our efforts. A crisis is a very good opportunity to start a 'bold challenge' again.

- What are the ways to strengthen our economic structure?

▲ Let's look at the job issue. Now is the era of knowledge industrialization and artificial intelligence (AI). We need to nurture talents required in these fields. We should focus on cultivating talents who can lead future growth. Like Israel, we can use military service periods to educate young people in technology. Israel teaches ICT specialized skills and knowledge in the military to help with tech startups. If we provide intensive educational opportunities for about 6 months to a year during military service, it could help create jobs.

- The government says it will create jobs through the Korean New Deal.

▲ When we think of the New Deal, we only imagine large-scale civil engineering projects like the Tennessee Valley development. But that's not all. The U.S. reformed systems such as welfare through the New Deal. The Digital New Deal and Green New Deal are good in content but abstract. Especially in the Green New Deal, they say they will overcome the climate crisis and foster hydrogen and renewable energy bases, but the substance is missing. The government says it will reduce nuclear power and replace it with liquefied natural gas (LNG) power, but LNG is not free. Can we guarantee that oil shocks and crises will not return? The government’s nuclear phase-out policy has killed the energy industry. Even existing jobs have disappeared. Basically, the term 'nuclear phase-out' should be abandoned, and the pace should be adjusted. Korea and the U.S. should secure the global nuclear power market together in line with the U.S. strategy to check China and Russia. For this, Shin Hanul Units 3 and 4 should be constructed as planned. The government should not directly intervene or interfere in the Digital New Deal. The government should focus on creating an environment where players can perform properly. The government should not try to create jobs directly but only play the role of a cheerleader.

- There are many concerns about fiscal soundness recently.

▲ I recently met staff who worked with me at the Budget Office, and they complained, "I don't know why we endured so much criticism to maintain fiscal soundness these days." Fiscal soundness must be maintained to be able to use funds during crises. The third supplementary budget (supplementary budget) will spend about 60 trillion won this year alone.

Especially in difficult times and unprecedented crises, the role of fiscal policy must be emphasized. The problem is how the money is spent. Korea's economic structure needs improvement. Instead of being obsessed with raising growth rates by 0.1% or 0.2% through fiscal input, focus should be on strengthening economic stamina. Even if the national debt ratio rises, if it is directed toward increasing the overall economic and social growth potential, there is less cause for concern. Although the debt arises from this investment, if the investment develops to the point where principal and interest can be repaid with profit, it is a successful investment. The problem is spending on wasteful areas. Even reflecting up to the third supplementary budget, the national debt ratio will rise above 43% by the end of this year. The government emphasizes that this is lower than the OECD average, but when advanced countries entered aging societies, their debt ratios were not as high as ours.

We also have the North-South Korea issue. Except for rice, most agricultural products are imported. If fiscal stability is shaken in this state, it will directly affect national credibility and ultimately burden future generations. We need to consider where the money is spent, what happens after the current government ends, and how to balance fiscal accounts. This is the responsibility of a five-year government. But such efforts are not visible. Basic living support should be provided, but the rest should be spent on growth support. Only then can fiscal soundness be restored.

There are many causes of fiscal waste. For example, subsidies to private organizations, which have become problematic recently, are not properly managed regarding where and how much is spent. This is a dereliction of duty by public officials. Unavoidable funds should be spent, but it must be clearly checked whether they are used properly. Welfare policies should also be reviewed to ensure they reach those truly in need and to assess leakage. The low birthrate issue is similar. From 2005, through the 'Basic Plan for Low Birthrate and Aging Society,' 110 trillion won was spent over ten years until 2015. But what is the current situation? The birthrate has fallen further. This basically means money was spent poorly.

- What are your views on the basic income system and tax increase proposals?

▲ I have long argued that if you want extensive welfare, you must have heavy burdens. There is no free lunch in the world. But delaying this and issuing national bonds only burdens future generations. First, inefficiencies in the existing budget system must be fixed, and if insufficient, tax increases are inevitable. If taxes are to be raised, the government must ask the public for help by pledging to reform and make welfare transparent despite the burden.

It makes no sense to propose tax increases to provide basic income as it is now. The basic income system means giving the same amount to all citizens regardless of assets or income, and I oppose this. Beyond fiscal burdens, Korea, a resource-poor country, has developed solely through its people. Basic income is a free ride that kills the will to work, ultimately harming social dynamism. Jobs are welfare. The government should spend money on productive welfare such as education and training.

- The business community says that the sharp increase in minimum wage and the 52-hour workweek make it difficult to manage companies. What do you think?

▲ Since the current government took office, the minimum wage has risen 29% in two years. Raising the legally mandated minimum wage by 29% during an overall economic slowdown is like a nuclear bomb. The damage falls on self-employed and minor workers, who lose jobs first. The minimum wage should be differentiated by industry. A perspective that considers both employment stability and flexibility is needed. We have an earned income tax credit that provides cash support to vulnerable worker households. Expanding this significantly is more necessary than sharply raising the minimum wage.

- After COVID-19, the reorganization of global value chains (GVC) is a hot topic.

▲ The government says it will provide subsidies to encourage companies to reshore, but companies will not return just because of a few subsidies. Fundamentally, a business-friendly environment must be created. Labor relations and labor-related regulations should be aligned with global standards. The government should not micromanage the de-China strategy. Leave it to the companies. If a company wants to reshore, ask under what conditions and create those conditions.

- Is Korea now a developed country?

▲ It is true that we have entered the developed country status. Korea became the 7th member of the so-called '3050 Club,' with a per capita income of $30,000 and a population over 50 million. The country's economic power ranks 10th globally. Leading the IT industry and with K-pop, K-sports, and K-quarantine, we are not inferior to other countries in crisis management and dynamism. But we must not be complacent. We are a resource-poor country with a small open economy. We live by exports. We are aging rapidly due to low birthrates and an aging population. And we have 25 million compatriots living in the poorest country, North Korea, right above us. Considering these, it is not the time to rejoice as a developed country.

- What is Korea's diplomatic strategy after COVID-19?

▲ A smart diplomatic strategy is urgently needed after COVID-19. Special attention should be paid to Korea-U.S., Korea-China, and Korea-Japan relations. It is necessary to listen to experts and review and check strategies in diplomacy. The U.S.-China hegemonic competition will not easily subside. Especially, Korea-Japan relations are important. To overcome the crisis, the two countries must unite. Otherwise, they could be trapped in a desperate situation. Do not focus on a single diplomatic channel but listen to experienced experts.

- What are the roles of the government and companies for Korea's sustainable economic development?

▲ To strengthen economic stamina and build immunity against shocks, restructuring is inevitable. It is not just about reducing people but fostering industries suited to new business areas and working styles. However, the government should not dictate what to do. One concern is that the government is providing a lot of financial support to companies struggling due to COVID-19, but this could lead to corporate insolvency. This could lead to financial institution insolvency and a financial crisis. To prevent this, both management and labor must change their mindset. Labor should not insist on no layoffs unconditionally. If companies close, it is useless. Labor and management must find a way to coexist. Management should not only ask for corporate tax cuts, deregulation, and financial support but also propose what companies can do first. Economic organizations and companies should create and present fair and transparent management plans, such as not engaging in unfair practices like work order manipulation, technology theft, or unfair succession, and seek cooperation from the public and labor. Only then can the government have grounds to ease regulations and gain union participation.

■ Profile

2012.04 Chairman, Academy of Korean Studies

2010.05 Chair Professor, Department of Trade, College of Commerce, Jeonbuk National University

2005 Director, POSCO Cheongam Foundation

2004.03 Open Democratic Party

2004.03 ~ 2007.03 Outside Director, LG Electronics

2003.06 Advisor, Seojeong Law Firm

2002.11 ~ 2013.12 Advisor, Samjong KPMG

2001.08 ~ 2002.04 4th Minister of Finance and Economy, Deputy Prime Minister for Economic Affairs

2000.08 ~ 2001.01 4th Minister of Finance and Economy

1999.05 ~ 2000.08 Minister of Planning and Budget

1997.11 ~ 1998.03 Chairman, Kia Group