On March 21, Kim Yong-beom, first vice minister of economy and finance introduced suggestions by Jason Furman, the U.S. White House economic advisor, on Facebook. According to Furman, too much is better than too little. He also suggested that the government should create a new program whenever necessary and advised it not to worry too much about overlapping support and side effects. These were included in “Mitigating the COVID Economic Crisis,” suggestions by 24 economists including Paul Krugman to state governments on how to overcome the COVID-19 crisis.
But the measures released by the Ministry of Economy and Finance actually go against these suggestions. The measures are far from “too much” in both scale and content. The National Assembly passed an 11.7 trillion won supplemental budget on March 17, which is smaller than the 28 trillion won supplemental budget in response to the global financial crisis in 2008. Even if we add the 50 trillion won of financial support, the government measures only amount to 2.7% of the nation’s gross domestic product (GDP). This is much smaller than the package by Sweden, which released a program on a scale of 10.6% of the nation’s GDP (600 billion krona or 77 trillion won), the U.S. at 9.8% (US$2 trillion/2.5 quadrillion won), and Spain at 16% (200 euro/274 trillion won).
The government measures are also missing details. There’s no measure on massive layoffs and unemployment. The Swedish government fully guaranteed the wages of employees who take the year’s sick leave in April and May. In France, the government will shoulder the cost of all paid leave. The group infection at the call center could have been the result of a lack of government measures on paid leave. Lee Woo-jin, a professor of economics at Korea University said, “There isn’t a single policy on massive layoffs in the government measures released so far,” and argued, “The government needs to provide funding for companies to prevent layoffs in addition to its measures supporting their liquidity.”
Some experts claim that the government should introduce a new system to prepare for long-term socio-economic shock. Kim Jeong-hun, head of the Fiscal Policy Institute (FPI) said, “If the Asian financial crisis in 1997 was a heart attack, COVID-19 is severe diabetes.” In other words, the world economy will be damaged, requiring a long time to recover from the crisis. The Asian financial crisis occurred in a limited region, East Asia, and at the time of the global financial crisis in 2009, China and the United States were able to lead international demand. But this time, there is no adequate “way out” in sight, so businesses will have to resort to restructuring its human resources. Kim said, “Even if it’s not included in the existing supplemental budget, the government needs to quickly select the people who don’t receive salaries (self-employed, unemployed, freelancers, etc.) and provide income for disaster relief.”
The government response to COVID-19 is a battle against time. The government needs to move before households and companies begin to collapse. Hong Jong-ho, a professor at Seoul National University (chairman of the Korean Association of Public Finance) said, “Rather than rely on a supplemental budget that needs to be approved by the National Assembly, the government should revise its plans concerning this year’s main budget, which exceeds 500 trillion won, and push back projects that need not be executed this year as well as projects that can’t be executed due to COVID-19 and immediately provide emergency funding.”
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