[Political Finance Runaway] 'Financial Instrumentalization' Beyond Limits... Populist Legislation for Presidential Election Likely to Peak

Overflowing Pain-Sharing Notices Issued by the Ruling Party

Financial Services Commission Chairman Eun Sung-soo and Office for Government Policy Coordination Chief Gu Yoon-cheol attended the full meeting of the Political Affairs Committee held at the National Assembly on the 22nd, listening to the lawmakers' questions with a cautious expression. Photo by Yoon Dong-joo doso7@

[Asia Economy reporters Kwangho Lee and Giho Sung] The blatant interference driven by political parties seeking votes from the financial sector is crossing the line. Financial companies are losing their original essence and function as they become mere 'policy tools' of COVID-19 amid the 'politicization of finance.' Considering the political timetable leading up to next year's presidential election, this populism is expected to peak. Experts warn that if politics continues to disrupt market logic, the foundation of the market economy order will collapse, and the damage will be passed on to vulnerable groups.

According to the National Assembly and financial authorities on the 22nd, the full meeting of the National Assembly's Political Affairs Committee included not only the 'Bank Act Amendment' that forgives debts of self-employed and salaried workers by financial companies during disasters but also the 'Partial Amendment to the Act on Registration of Loan Business and Protection of Financial Users,' which lowers loan interest rates for landlords by credit finance institutions and provides government interest subsidies. The 'Partial Amendment to the Small Business Basic Act,' which focuses on reducing rent and loan interest in addition to business compensation, was also on the agenda.

Requests from the ruling party for pain-sharing in the banking sector are nothing new. The amendment to the Support for Low-Income Finance Act, regarded as a 'financial sector profit-sharing system,' which collects about 100 billion KRW annually from banks to support low-income financial products, passed last month. The suspension of principal and interest repayments on loans for small and medium-sized enterprises and small business owners, which was scheduled to end last month, was also extended again at the ruling party's request. Former Democratic Party leader Lee Nak-yeon summoned CEOs of financial companies to demand easing of loan interest rates, and Policy Committee Chairman Hong Ik-pyo argued, "We should not stop at reducing rent but also stop or limit interest rates in the banking sector."

Experts point out that the financial industry is being distorted as financial policies are used to suit political tastes. Professor Sangbong Kim of Hansung University's Department of Economics said, "While administrative finance is criticized as a problem, the current situation goes beyond that, with politics controlling finance," adding, "Excessive populism is problematic, but the bigger issue is that politicians do not understand the financial system itself." Professor Seongin Jeon of Hongik University's Department of Economics criticized, "The political sphere must abandon its desire to use finance as a tool of politics."

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