Yoon Economic Team Takes Off... First Mission: Soft Landing of Prices

First Ruling Party-Government Meeting Since Yoon Seok-yeol Administration Launch
Challenges of Price Stability Amid High Inflation, High Exchange Rates, and High Interest Rates
Massive National Debt and High Oil Prices Also Pose Difficulties

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is speaking at the ruling party-government meeting on the second supplementary budget bill for small business loss compensation, held at the National Assembly on the 11th.
[Image source=Yonhap News]

With the first party-government consultation held on the 11th between the Yoon Suk-yeol administration and the People Power Party, the work of the 'first economic team' has officially begun. The second supplementary budget (추경), regarded as the first task of the economic team led by Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, is in its final stages, but many obstacles remain to be resolved. In the 'three highs (高)' economic situation of high inflation, high exchange rates, and high interest rates, the urgent tasks include stabilizing prices and real estate prices and recovering the economy trapped by COVID-19. Challenges also include the decrease in the current account surplus due to high oil prices, national debt exceeding 1,000 trillion won, and financial market instability caused by U.S. interest rate hikes.

Deputy Prime Minister Choo's first directive after taking office was to order the establishment of an Emergency Economic Response Task Force (TF) within the Ministry of Economy and Finance, which is interpreted as a reflection of his determination to swiftly address the severe economic situation. The Emergency Economic Response TF, led by First Vice Minister Bang Ki-sun as team leader and including the Vice Minister (deputy team leader), Director of Economic Policy Bureau, Director of International Finance Bureau, Director of Treasury Bureau, Director of External Economic Bureau, Chief Budget Review Officer, and Chief Tax Review Officer, will hold its first meeting this afternoon.

The top priority for the first economic team centered on the Emergency Economic Response TF is undoubtedly price stabilization. Since prices are directly linked to people's livelihoods, achieving this quickly is essential. Domestic consumer prices, which soared to 4.8% last month?the highest since the 2008 financial crisis?are expected to continue their high trajectory for the time being due to rising international oil prices fluctuating around $100 and increases in grain and raw material prices. In this situation, the government must also finalize the supplementary budget for COVID-19 loss compensation. This creates a dilemma of needing to inject funds while controlling inflation. The Bank of Korea is maintaining its policy of raising interest rates considering inflation, but this too has limited options as it could slow economic growth. With growing fears that stagflation could become a reality, especially centered on the U.S., exchange rates are also showing volatility.

Another problem is that exports, which support our economy amid high oil prices, are faltering. According to the Bank of Korea, the current account surplus in March was $6.73 billion, marking 23 consecutive months of surplus, but the surplus amount decreased by $770 million compared to the same month last year. This is due to a 52.3% surge in raw material imports. The government's fiscal balance, calculated by subtracting total expenditures from total revenues, is expected to record a deficit for the fourth consecutive year. The 'twin deficits'?both current account and fiscal deficits?are coming into view. The national debt, which exploded during the COVID-19 period, is also a powder keg. Including this year's supplementary budget, the national debt is projected to reach 1,075.7 trillion won.