The lack of an efficient control tower is increasing concerns over the country’s capabilities to cope with the economic fallout from the coronavirus outbreak.
South Korea managed to overcome previous economic crises relatively well by establishing a control tower in charge of coordinating policy responses.
During the 1998 foreign exchange crisis, then President Kim Dae-jung entrusted a team of competent bureaucrats to implement measures to surmount it.
When the country was hit by a global financial crisis a decade later, then President Lee Myung-bak -- a former construction company CEO -- took the lead in dealing with economic difficulties by presiding over 145 emergency meetings of related officials. His economic team was also credited for being shrewd in responding to the critical situation.
Now, the market seems to have little confidence in the economic leadership of President Moon Jae-in’s government. It is unclear who is in charge of coordinating policies to cushion the economic impact of the spreading coronavirus.
Moon, a former human rights lawyer, has little knowledge and experience regarding the economy. Key officials who advise him on economic affairs at the presidential office represented civic groups critical of business conglomerates before they took their current positions.
Minister of Economy and Finance Hong Nam-ki, who doubles as deputy prime minister for economic affairs, is criticized for abandoning his role by just following instructions from Cheong Wa Dae, which were mostly out of touch with reality.
Adding to the confusion over how to shore up the virus-hit economy is the discord between the ruling Democratic Party and the Finance Ministry on whether to expand the proposed supplementary budget bill.
The party considers the 11.7 trillion won ($9.6 billion) extra budget bill, which was submitted to the parliament earlier this month, as insufficient to help with the fight against the coronavirus and to minimize its economic impact. It is pushing to increase the emergency spending plan by at least 6 trillion won to meet additional requests by parliamentary committees.
Despite his reputation for easily caving in to political pressure, Hong appears reluctant to accept the demand from the ruling party. Any sensible fiscal policymaker would find it difficult to accept the reckless spending requests that lack concrete grounds for expenditure. Critics note the ruling party is preoccupied with expanding fiscal spending regardless of its pertinence to improve the aggravating voter sentiment ahead of the general election on April 15.
Lee Hae-chan, leader of the Democratic Party, last week voiced displeasure with Hong’s passive attitude toward increasing the proposed extra budget. He went so far as to threaten to call for Hong’s resignation unless the finance minister changed his stance.
In an emergency meeting with economic policymakers Friday, Moon expressed his confidence in Hong, asking him to keep up his “good work.”
At the same time, the president seems to be siding with the ruling party on the need to increase the supplementary budget bill. He called for “unprecedented” policy measures to counter the economic fallout from the spread of the coronavirus, saying the current situation is far more severe than the SARS outbreak in 2003 and the MERS crisis in 2015.
His contradictory messages did nothing to establish Hong’s position as a control tower in coping with the latest emergency economic situation.
Moon hurriedly convened the meeting Friday as growing worries over the global spread of COVID-19 jolted the local financial market beyond manufacturing and consumption.
A free fall in stock prices on the same day prompted a brief trading halt on both the main Kospi bourse and the tech-heavy Kosdaq market for the first time.
The Korean won dipped to a four-year low against the US dollar at a point during Friday’s trading.
After the meeting presided over by Moon, the Financial Services Commission announced a six-month ban on stock short selling, helping trim earlier equity losses.
The financial watchdog body had already agreed with the Finance Ministry to take the measure but delayed its announcement until after the meeting convened by Moon. A quicker announcement would have further helped ease the rout on the local stock market.
The economic team should be given the authority to take measures immediately in response to market volatility without being endorsed by the president.
It is not easy and sensible to replace the top economic policymaker in times of crisis. Moon needs to delegate full power to Hong to enable him to play the role of a control tower in coping with the emergency situation.
For his part, Hong should closely coordinate with the heads of the financial watchdog and the central bank to prepare for any market instability.