Supplementary Budget to Boost Sagging Economy

Joins the United States and Japan in introducing an economic stimulus package; Korean parliament to act on a 28.9 trillion won supplementary budget bill

The following are excerpts of an interview between NewsWorld and Joo Young-jin, senior staff director of the National Assembly Special Committee on Budget & Accounts, who touched on the details of the supplementary budget bill, including its goals and expected effects - Ed.
Question: Congratulations on your appointment as senior staff director of the National Assembly Committee on Budget & Accounts after your service as senior staff director of the National Assembly Land, Transport and Maritime Affairs Committee. Do you have your hands full handling the supplementary budget? A record high supplementary budget bill has been submitted to the parliament due to the unprecedented global economic downturn.
Answer: Thanks. The proposed supplementary budget is scaled at a record high of 28.9 trillion won, double the 13.9 trillion won supplementary budget during the 1997 Asian financial crisis. The latest figure translates into 3.0 percent of gross domestic product (GDP), similar to the 2.9 percent of GDP in 1997. I've worked with the parliamentary budget for a long time as I've held such positions as the director of planning and budget, a bill deliberation director of the Budget & Accounts Committee, the staff director of the committee, the director in charge of planning and management at the Budget Policy Bureau and the senior staff director of the committee.
Q: Will you tell the readers the significance and effects of the supplementary budget proposal?
A: As the financial crisis that began in the United State has spread to the whole of the globe, not just Korea, but Japan, China and Europe, particularly Eastern Europe, are suffering from economic hard times. Many nations have poured in massive amounts of fiscal spending to overcome the economic crisis. The United States 111th Congress passed a $787.2 billion stimulus package bill in February, and Japan, which approved two supplementary budgets last year, plans to act on the 2009 budget and another supplementary budget. The National People's Congress of China also announced a massive plan to stoke up the economy.
Likewise, many countries turn to fiscal spending to tide over the economic crisis. The United States would spend $2 trillion in fiscal spending since last May, while Japan pouring 12 trillion yen since last August. In particular, Japan is going to give 12,000 yen in cash per head to all of the people to stimulate spending -- 20,000 yen each to those aged less than 18 and those over age 65. Our supplementary budget calls for the implementation of the "Hope Work Program" that would provide half cash and another half coupons to help those in the low-income bracket in exchange for their work to ensure a social safety net and induce spending.
While serving as a parliamentary bill deliberation director of the Budget & Accounts Committee, I saw Japan's doling out of gift coupons to Japanese people as nothing to do with us back then. Ironically, Korea's offering consumer coupons is becoming a reality.
Q: I hope that the purpose of the supplementary budget will be understood well and it will work in the consumer market for economic recovery. There is a worry that the large size of the supplementary budget will have an adverse impact on fiscal soundness.
A: It is true that the supplementary budget will incur debts to the government. If it is passed, the Korean government's debt-to-GDP ratio will rise to 35.6 percent. However such is more sound level than the average of the OECD countries, within the extent it can handle. In a precautionary step to handle an emergency situation initially, the government wants to issue public bonds for a supplementary budget. The supplementary budget totaling 28.9 trillion won breaks down to 2.1 trillion won in 2008 fiscal year's accounts surplus; 4.8 trillion won in funds; and 22 trillion won in the issuance of national public bonds.
Even the United States and Japan rely on a supplementary budget to turn around their economies despite huge state debts. The debt-to-GDP ratio is 170.3 percent for Japan, 62.8 percent for the United States, 38.5 percent for Korea and 75.4 percent for the average of OECD countries, so Korea is comparably sound, but the forthcoming supplementary budget would increase Korea's state debts to 367 trillion won, requiring a more strict national debt management. We hope the supplementary budget will be executed properly, lest it should undermine fiscal soundness in a long-term perspective.
Q: In order to help the supplementary budget work well, a mechanism for supervising its execution needs to be in place to preempt such loopholes as the misappropriation of a welfare fund for the handicapped by a local government agency, which was uncovered lately.
A: That's right. There is the need for the efficient operation of a welfare delivery system for supporting people's livelihoods. Consumer coupons being distributed under the Hope Work Program would require coupon holders to spend them within three months in order to shore up the national consumption and to support neighborhood supermarkets, conventional markets and others in the low-income bracket. The aim of this supplementary budget is to create jobs and support SMEs, self-employed people, low-income earners and those in the poor bracket, so there are many welfare programs in that. To make sure the delivery system of such programs work well, it is important to preempt any possible misappropriations of welfare funds. The U.S. Government Accountability Office (GAO) is required to report to the congress every 60 days the status of the execution of the economic stimulus budget. In the way the GAO will dispatch accountability teams to states in the next two years, I think our Board of Audit and Inspection needs to do the same.
Q: Are there any difficulties facing the parliament in acting on the supplementary budget bill?
A: The ruling and opposition parties concur on the necessity of the supplementary budget in a broader perspective, but the reality is that both sides differ in the size and contents of the bill. The government and the ruling party want to get the budget bill approved as originally planned, whereas, citing the need for the public sector to make sacrifices due to the debt-incurring nature of the supplementary budget, opposition parties maintain that the issuance of national and public bonds be axed by putting tax reductions on hold. The opposition's position is that creating jobs should not be sketchy. The committee plans to hold a public hearing to gather opinions from experts during parliamentary deliberation and seek affordable alternatives by scrutinizing the mid-term national financing plan and the national debt management plan.
Q: The supplementary budget could create temporary jobs, but the size of the national economy needs to be expanded in order to create more permanent jobs. How much of the supplementary budget will be set aside for the social overhead capital sector?
A: The supplementary budget will set aside almost nothing in such mega-SOC sector projects as road and railway construction. They would be limited to 350 billion won for restoring four major rivers; 200 billion won for preventing stream disasters and the money for safety-related projects for revamping road and railway networks. Funds for the road and railway sector are reflected in the 2009 primary budget. The supplementary budget for the Ministry of Land, Transport and Maritime Affairs would be a little more than 1 trillion won, 800 billion won of which is related to the SOC sector. The supplementary budget would allocate SOC funds for restoring four major rivers and reinforcing small- and medium-sized road and railway facilities, but they could be classified into budget for creating jobs in a broader sense.
The government is aiming for a 1.5% point rise in real economic growth. Given the easing of regulations and the expanding of investments by the private sector, the real economic growth rate is forecast to rise up to 2% point.
Q: The International Monetary Fund (IMF) predicted an economic contraction of 4 percent compared to Korea's forecast of a minus 2 percent growth rate.
A: Right. The government expects the real economic growth rate to reach a better-than-planned minus 2 percent.
Q: We once enjoyed explosive economic growth.
A: Right. Advanced countries like the United States have posted a maximum of about 4 percent economic growth, but China has grown more than 10 percent in recent years. Our economy, which once had a super-high growth rate, has suffered economic setbacks, particularly after the 1997 Asian financial crisis. The national economy is projected to grow minus 2 percent after the upcoming supplementary budget is executed. The economy is forecast to keep sagging into the second half of this year and into next year, and it will likely be 2011 before the economy turns around to some extent.
Q: President Lee Myung-bak put forward proposals to get over the global economic crisis at the G-20 summit talks.
A: The United States, Japan and Korea favor aggressive fiscal policies designed to overcome the global economic crisis, while Europe wants to strengthen financial regulations. The G-20 summit talks held in London are considered to have been a success to some extent. They led to agreements on avoiding trade protectionism and securing an additional $100 billion in funds for the IMF and other international organizations.
Q: Where will the U.S. economy head in the future?
A: While meeting with ranking officials of the Federal Reserve Board, the World Bank and the IMF last March, I heard that "everything is uncertain, but the U.S. economy is especially bleak and uncertain." We met with the chairmen of the Japanese parliamentary budget and accountability and settlement committees and the finance vice minister. The two countries said they were striving to put together a supplementary budget to boost their economies. They have one voice in stressing fiscal roles designed to stimulate their respective economies. The current economic crisis involves all nations across the world, much different from the Asian economic crisis in which only some Asian countries, including ours, had hard times. Accordingly, all nations should collaborate in order to tide over the current crisis, creating synergetic effects. More importantly, however, I see that when the United States, where the crisis initially started, can cope with it, we could also find our silver lining. nw

Joo Young-jin, senior staff director of the National Assembly Special Committee on Budget & Accounts