Reasons for Economic Crisis Concerns Triggered by Kim Jin-tae... Opposition Says "Leading the Crisis Faster and in a Worse Direction"

Hong Seong-guk, Democratic Party's Special Committee on Livelihood Economy Crisis Secretary
"Economic crisis triggered by Kim Jin-tae causes credit crisis to explode negatively, but this time it's reversed"
Government's austerity direction also complicated by this situation
"Only 50 trillion+α, but doubtful if it will stabilize the market"

Hong Seong-guk, Member of the Democratic Party of Korea./Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Naju-seok] Hong Seong-guk, a member of the Democratic Party of Korea and the secretary of the Livelihood Economy Crisis Countermeasures Committee, evaluated on the 26th that Governor Kim Jin-tae of Gangwon Province accelerated and worsened the domestic capital market tightening through the Gangwon Land Lego Land incident.

In a phone interview with this publication on the same day, Representative Hong analyzed, "Our financial market, real estate issues, and ultimately household debt problems inevitably lead to liquidity problems, but Governor Kim's declaration of default on the Lego Land debt brought this forward by two to three months." He pointed out, "(The problem is) that it was brought forward in a worse direction," adding, "Lowering the credibility of local government guaranteed bonds is a very bad precedent," and "Usually, when financial conditions worsen, it starts with the lower credit side, but this time it happened the other way around."

He explained that problems arose in the asset-backed commercial paper (ABCP) of Gangwon Jungdo Development Corporation, which has high creditworthiness backed by Gangwon Province's guarantee, causing great confusion in the capital market itself.

Representative Hong diagnosed, "Because the order was reversed, everything became a mess," and "The Kim Jin-tae incident acted as a catalyst that greatly accelerated certain price adjustment issues in the real estate market and the overall difficulties of our economy."

Regarding the government's proposal of a liquidity supply program worth 50 trillion won plus alpha, he said, "This was a solution first proposed by the Democratic Party's Livelihood Economy Crisis Countermeasures Committee," and "From the government's perspective, there is probably no alternative." However, he expressed skepticism about whether it would significantly help the capital market problem itself.

[Image source=Yonhap News]

Representative Hong said, "This is not using the Bank of Korea's issuance power but taking existing money and putting it into the liquidity supply program. The final investors now are mainly pension funds and life insurance companies, but the National Pension Service is focused on overseas investments and has no capacity, and life insurers are currently suffering from negative spreads and have little money. They sold many savings-type insurance policies in 2012 and 2017, but with maturities coming due, it is difficult to prepare funds." He pointed out, "Money has to come from somewhere, so banks would have to issue bank bonds, which would cause bonds to be issued and market funds to flow in, but for savings banks and others, funds would flow out." Ultimately, he said, this exposes the limitation of a remedy that is like taking a stone from the bottom to put on top.

At the emergency discussion on the capital market crisis response to the Kim Jin-tae incident and the economic disaster of the Yoon Seok-yeol government held at the National Assembly's Livelihood Economy Crisis Countermeasures Special Committee on the morning of the same day, Representative Hong said, "From a big-picture perspective, the Yoon Seok-yeol government raised interest rates under austerity, tightening the capital market, which caused this incident, forcing them to pay money and then retreat from austerity, resulting in a policy mismatch." He added, "During the National Assembly audit period, Representative Yoo Dong-soo of the Democratic Party said that Governor Kim was like someone who lit a lighter in a space filled with gas, and I agree it was Governor Kim," and compared him to UK Prime Minister Liz Truss, saying, "They say ignorance is courage, and this is exactly the situation now."

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