[6 Months of Yoon Administration] Economic Team Busy Amid 3 Highs Crisis... Mismatched and Delayed Responses Increase Anxiety

Private Sector-Led Direction Confirmed but Minority Government Limits
Bond Market Shaken by Legoland Incident... Heungkuk Life's Response Also Delayed
Conflicting Messages Within Economic Team Intensify Market Confusion

[Asia Economy Sejong=Reporter Kwon Haeyoung] The economic team of the Yoon Seok-yeol administration is facing the most challenging domestic and international economic conditions in history due to the triple high ('3-high') crisis of inflation, interest rates, and exchange rates. While there is positive evaluation regarding the direction set as a 'dynamic economy led by the private sector,' it is difficult to give high marks as it has not translated into policy achievements. Recently, amid financial market instability such as the Legoland-induced bond market shock and the sharp rise in exchange rates, there are criticisms that discord and delayed responses within the economic team have exacerbated market confusion.

The 'Private Sector-led' Direction is Correct but Limited by a Minority Government

According to the government on the 10th, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho has held a total of 11 'Emergency Economic Ministerial Meetings' and 6 'Emergency Macroeconomic and Financial Meetings' since taking office. These meetings focus on closely monitoring and responding to economic conditions such as inflation, livelihood, finance, and exports.

As inflation, interest rates, and exchange rates soared and the global economy entered a downturn, the economic team diagnosed the current situation as a 'complex economic crisis' from the outset and switched to an emergency system. While focusing on stabilizing prices and livelihoods, they proposed private sector-led growth as a solution, earning positive evaluations for setting the right direction for economic policy. The government established a plan to create a business-friendly environment through regulatory reforms and lowering the top corporate tax rate (from 25% to 22%), aiming to realize an economy driven by the private sector with government support. The core of real estate policy also shifted from regulation to market principles.

The problem is that six months have passed since the big picture was drawn, but there are no clear results that the public and businesses can feel. Although strong control over state affairs and tightening the reins of reform are expected in the early term, the administration has encountered the obstacle of a minority government as feared. Key policies reflecting the current administration’s philosophy, such as corporate tax and comprehensive real estate tax cuts included in the tax reform plan, are expected to face rough roads due to opposition parties’ attacks labeling them as 'tax cuts for the rich.' Professor Sung Tae-yoon of Yonsei University’s Department of Economics said, "Since the new government took office, practical policy changes related to regulation, real estate, and taxation that would allow the economy to function smoothly should have been made, but the situation from the previous administration remains. Although there are external shocks and the limitation of a minority government, the ultimate responsibility for policy implementation lies with the government, so it seems difficult for the current economic team to receive high evaluations."

Financial Market Instability... Discord Among Ministries and Agencies

The government’s delayed response to the Legoland and Heungkuk Life Insurance incidents has also intensified market anxiety. Right after Gangwon Province effectively declared default on Legoland’s 200 billion won debt, the bond market immediately shook, but the government’s response was late. As fears of a freeze in the capital market grew, the government belatedly announced a plan to inject funds in the 50 trillion won range to purchase corporate bonds and commercial papers. Criticism arose that "a problem that could have been stopped with 200 billion won is being stopped with 50 trillion won." The same applies to the delayed early redemption of Heungkuk Life Insurance’s hybrid capital securities.

Discord within the economic team, which emphasized a 'policy coalition' and one team approach during the financial crisis, is also evident. Regarding the Legoland incident, Financial Services Commission Chairman Kim Joo-hyun said at last month’s National Assembly audit, "I believe the Bank of Korea will take all measures, including reactivating the Corporate Liquidity Support Facility (SPV)." This was a call for the Bank of Korea to directly supply liquidity using its issuance power, but Bank of Korea Governor Lee Chang-yong drew a line, saying, "It is not an appropriate policy at this time." When the exchange rate soared, the government announced in September that "discussions on liquidity supply mechanisms between Korea and the U.S. include currency swaps" (Choi Sang-mok, Senior Secretary for Economic Affairs at the Presidential Office), but the next day the Bank of Korea said, "Theoretically, it is an unnecessary situation" (Governor Lee Chang-yong). In a crisis, the economic team’s conflicting messages have intensified market confusion.

There are also calls for a major personnel reshuffle within the economic team. Professor Sung said, "One risk is that most of the people leading the government’s economic policy are former Ministry of Economy and Finance bureaucrats," advising, "It is necessary to diversify the economic team’s personnel background to lead active policy changes beyond maintaining the current situation."