[Column] Macroeconomic Policies That Tell Citizens to Fend for Themselves

The economic sentiment index for May, released monthly by the Bank of Korea, has remained at its lowest level since May 2009. Meanwhile, according to the recent National Barometer Survey (NBS), 77% of respondents said the economy is in poor condition, while only 20% viewed it positively.

Signs of recession are evident across the board, affecting both exports and domestic demand, as well as the manufacturing and service sectors. Despite a significant economic downturn, banks’ corporate lending over the first five months of this year amounted to only 64% of the same period last year. In particular, loans to individual business owners have shrunk to just one-quarter of last year’s level for the same period. The employment situation is also challenging, as people aged 65 and older accounted for 78% of the increase in employment in May. Income and consumption polarization is deepening, further intensifying the economic hardship faced by low-income groups.

Recently, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho responded to the opposition’s call for a supplementary budget by warning, “If we push for a supplementary budget despite a tax revenue shortfall, how are we supposed to manage the nation’s finances?” On May 25, Bank of Korea Governor Rhee Chang-yong stated at a press conference, “Trying to resolve the low-growth problem through short-term policies such as fiscal or monetary measures is a shortcut to damaging the country,” and emphasized, “What matters for raising Korea’s growth rate is structural reform achieved through social consensus.”

Both Deputy Prime Minister Choo’s argument that a supplementary budget cannot be implemented due to a fiscal deficit, and Governor Rhee’s assertion that monetary expansion should not be used to boost growth, are valid. However, both the Deputy Prime Minister and the Bank of Korea Governor must also explain what policy alternatives they have for addressing the deepening recession and the growing hardships faced by ordinary people. If there are no alternatives, are citizens simply expected to fend for themselves? The uncomfortable truth that the government and the Bank of Korea are ignoring is that the current macroeconomic policies are fundamentally inadequate, and as a result, people’s livelihoods are sinking deeper into distress.

The best solution would be for the economy to recover quickly. Initially, there was at least some hope that the economy would rebound in the second half of the year, driven by exports, following the so-called “slow start, strong finish” outlook. However, the Bank of Korea’s revised forecast for June already reflects concerns that a recovery in the second half will not come easily. China is unable to demonstrate a “re-open effect” due to its real estate slump and excessive debt, while the U.S. economy is staggering under the shadow of a potential recession in the second half. In short, while exports and the economy may improve somewhat in the second half compared to the first, it is difficult to be optimistic that the recovery will be strong enough to overcome the recession.

Given that the global economy suffered a prolonged slump of five and a half years following the European debt crisis in 2011, it is overly optimistic to expect a quick recovery now, as the world economy’s growth engines have stalled due to the aftereffects of the COVID-19 pandemic and the new Cold War. If the economic recovery in the second half falls short of expectations and people’s hardships deepen, will the government once again blame the fiscal deficit and do nothing?

The government and the Bank of Korea must recognize that people’s livelihoods are suffering through a recession while still weakened from three years of COVID-19. In particular, self-employed individuals have endured income declines for four consecutive years. Even now, the government and the Bank of Korea should prepare alternatives to support people’s livelihoods, based on the possibility that the economic recovery in the second half may remain sluggish. Simply waiting for a rebound and telling citizens to fend for themselves cannot be called responsible policymaking. In any circumstance, the government is obliged to serve as the final safeguard for people’s livelihoods and to present policies that provide comfort and support.

Kim Dongwon, former visiting professor at Korea University

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