[Inside Chodong] The Outcome of Populist Policies Is Already Decided

Policies Swayed by Public Opinion Ahead of the Election
Delaying Today's Tasks Means Paying the Price Later

One of the TV programs I have been enjoying recently is "Kongkongpatpat." It is a reality documentary featuring the farming diaries of novice farmers, and as the title suggests, the core message is "beans grow where beans are planted, and red beans grow where red beans are planted." Watching the novice farmers marvel at the watermelon flowers growing from the spots where they planted the watermelon seeds they had eaten and spit out, saying "This can't be," naturally brings to mind the thought, "Yes, this is nature." Isn't it the law of nature to reap what you sow? If you postpone today's tasks until later, the harvest could be drastically reduced due to damage from pests and diseases.

Policy financial products such as the Special Bogeumjari Loan are being identified as the main cause of the recent surge in household debt. A banner related to the Special Bogeumjari Loan posted in front of a bank in Seoul. [Image source=Yonhap News]

Capitalist economies share similarities with this. First, it is natural that if you plant watermelon seeds, watermelons will grow. Take, for example, the household debt issue that even the presidential office has expressed concern about. As the warning goes, "If a household debt crisis occurs, it will be several tens of times more powerful than the 1997 foreign exchange crisis caused by corporate debt," household debt in Korea is on the verge of exploding. However, the government bears the greatest responsibility for this situation. It sent signals encouraging people to take out loans and buy houses by easing special home loan programs amid cries that the real estate market was about to crash.

Although the condition was limited to vulnerable groups and young people, the aftermath was significant. The easing of loans naturally led to market recovery, rising housing prices, and a surge in household loans. Thanks to this, the government's achievement of reducing household debt by 7.8 trillion won last year through strict loan regulations quickly vanished. If the government was confident that it could manage household debt last year despite loan easing, it was no different from planting watermelon seeds and expecting pumpkins to grow. Expecting household debt reduction through real estate policies enslaved to such populism is out of the question.

Like farming, economic policies also have consequences if current tasks are postponed. In this regard, the outcome of the "half-hearted" electricity rate hike plan released while watching public opinion ahead of the general election in April next year seems predictable. Of course, ordinary consumers will welcome the rate freeze. However, the situation does not allow for electricity rates to be frozen indefinitely. Korea Electric Power Corporation (KEPCO) is on the brink of bankruptcy due to an abnormal electricity rate system that is below cost. Although it achieved a surprise profit in the third quarter of this year, its financial structure has not significantly improved. Since the second quarter of 2021, the accumulated deficit has exceeded 45 trillion won.

KEPCO is currently issuing KEPCO bonds to prevent the situation from worsening into bankruptcy, but if the issuance volume increases further, it will cause difficulties in corporate financing. This is because funds will flock to the high-quality KEPCO bonds, intensifying liquidity tightening in the bond market. The Legoland incident experienced last year could happen again. A bigger problem is that if the current situation continues, next year KEPCO may reach the worst-case scenario where it cannot issue additional bonds due to exceeding the issuance limit. The delayed rate hike, postponed while watching public opinion, could return as such a harsh boomerang.

The end of populist policies that go against reason is imaginable. The national treasury is depleted, and the people become divided. This is likely why the Yoon Seok-yeol administration, at its inception, firmly opposed populism and vowed to maintain principles. However, that same Yoon administration has fallen into the populist trap ahead of next year's general election.

Although the administration must be more desperate than ever after the by-election defeat, trying to avoid crisis with populist handouts could bring even greater disaster. Just as the Yoon administration emphasized the rule of law and firmly dealt with labor union strikes despite falling approval ratings, it is time to comprehensively consider policies necessary for the nation's future rather than policies aimed at winning votes. This is also the path for the ruling party to win.

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