[Inside Chodong] "It's No Longer Administrative Finance, But Now the Era of Political Finance"

[Asia Economy Reporter Sim Nayoung] Administrative finance can be simply explained as this: the government interfering in the governance or decision-making of banks. What immediately comes to mind is the economic bureaucrats during the dictatorship era. But let's set aside the image of dictatorship for a moment and focus only on the word "administrative control." Is the market a flawless entity? Can government regulation always be considered bad? If so, then public officials would be unnecessary. This is why the saying "there is wrong administrative control, but no bad administrative control" exists.

Especially nowadays, when many citizens such as self-employed people are struggling, we must be cautious of "political finance" that disrupts financial order to gain popularity in politics. During the 20th presidential election campaign, bankers looked at the financial pledges of both ruling and opposition parties and clicked their tongues, saying, "Public officials only watch the Blue House and National Assembly. Now, it's not administrative finance but political finance."

One example is the Youth Leap Account proposed by President-elect Yoon Seok-yeol. Inside the Financial Services Commission, there were comments like "This should ideally be created by the Ministry of Health and Welfare," reflecting its strong welfare policy nature. Banks also expressed difficulty, saying, "There has never been a savings product like this before." The plan is to help young people save 700,000 won per month to accumulate 100 million won, with the government supplementing up to 400,000 won per month in taxes for subscribers in the lowest income bracket.

Although the intention is to help accumulate a lump sum, it is far from a typical financial product. It applies a 3.5% interest rate compounded annually over a 10-year maturity (usually savings maturity is 2 years), which yields more interest than simple interest. (Currently, savings interest rates are at most in the 2% range, and compound interest is lower than simple interest.) Banks would have to pay over 13 million won in interest per person. This inevitably raises issues of fairness among generations, social classes, and financial consumers.

Although it is now unlikely to be realized, candidate Lee Jae-myung’s youth loan proposal was even more extreme. It promised to lend 10 million won at ultra-low interest rates for 10 years, targeting 10.45 million people aged 19 to 34. Simply calculated, this could result in loans totaling up to 104.5 trillion won. Banks would have to lend regardless of the borrower's repayment ability.

While it was said that if young people cannot repay, the government (guarantee agency) would repay on their behalf, government finances (funds for capital expansion of guarantee agencies) do not fall from the sky. They must not be wasted. Even in the 13th century, when Jewish diaspora communities faced various persecutions while engaging in money lending, they did not operate like this. They did not deal with people who lacked the ability to repay. Even at the dawn of banking, loan screening and interest rates based on repayment ability were fundamental principles.

Just by looking at these two pledges, one can see how irrational political finance aimed at pandering to popularity is. Public officials, merely following politicians' orders, push policies that ignore market principles. In times like these, even the executive branch should at least show the grit to say "no" when something is not feasible, and a proper administrative finance system that enforces bank regulation well is needed.

In 1998, when the giant hedge fund Long-Term Capital Management in the United States was on the brink of bankruptcy, an urgent Alan Greenspan, Chairman of the Federal Reserve (Fed), gathered the CEOs of major creditor banks in one room. He closed the door and said, "Do not leave here until you convert debt into equity to resolve this." Eventually, 14 banks provided an emergency support of $3.65 billion, barely helping the financial market overcome the crisis. The reason Greenspan took an action not even provided for in U.S. law was simple: financial crises spread rapidly across entire industries. Even in the U.S., the symbol of market economy, administrative finance operates in this way.