[Opinion] The Challenge for Choi Sang-mok, Head of the 2nd Economic Team under the Yoon Seok-yeol Government

The confirmation hearing for Choi Sang-mok, the nominee for Deputy Prime Minister and Minister of Economy and Finance, will be held on the 19th. The consensus is that Choi is a well-qualified candidate for the position of Deputy Prime Minister for Economic Affairs. It is widely expected that he will pass the confirmation hearing smoothly. Following Deputy Prime Minister Choo Kyung-ho, it is fortunate that another deputy prime minister with deep knowledge of government organization and policy will be appointed. However, there are numerous challenges to address amid difficult economic conditions such as high interest rates, high inflation, and sluggish domestic demand.

The most urgent task is to control inflation. Although the recent consumer price index has remained in the 3% range, reaching the Bank of Korea’s target inflation rate of 2% is not easy. International organizations and foreign financial institutions forecast that inflation will persist through next year. Unless prices of grains, raw materials, and other commodities stabilize dramatically downward, our economy could face even greater difficulties than this year. Since inflation is directly linked to people’s livelihoods, meticulous policies are necessary.

Expertise is also required to deflate the asset market bubble. While the Bank of Korea could resolve this naturally by aggressively raising the base interest rate, such a move raises concerns about a collapse in the asset market. The government and the Bank of Korea seem to have an implicit agreement on a soft landing at this point. The Bank of Korea has slowed the pace of interest rate hikes, and the government has controlled lending in the financial sector to sustain the situation so far. However, the situation is likely to become more serious from now on. Since interest rates are expected to remain at current levels until the first half of next year, more people will find it difficult to bear the burden of loans. It is necessary to deflate the asset market bubble while preventing household bankruptcies.

Wrong signals must not be sent to market participants. Policies that encourage households to take out loans to buy homes could instead generate more bubbles. Forcing a halt to falling house prices only worsens the crisis. It is said that in the real estate market, “psychology” has a greater influence than “interest rates.” Leadership is needed to achieve a soft landing for the asset market.

Finally, full effort must be devoted to structural reform. The demographic cliff we face and the resulting decline in potential growth rate are not distant future issues. Labor reform, public sector reform, and education reform are tasks that can no longer be postponed. Although late, concrete preparations must begin to address population decline. In particular, labor reform and public sector reform require direct involvement from the Deputy Prime Minister for Economic Affairs. Jobs must be made more flexible, and the seniority-based pay system in the public sector must be abolished. Labor market rigidity under the current demographic structure results in depriving the younger generation of jobs. The first step to giving hope to future generations must be found in employment.

Among the tasks of this second economic team, the most difficult yet important is structural reform. The fate of the Republic of Korea is at stake. It must be remembered that delaying structural reform by five years could cost ten years, and delaying by ten years could cost thirty years. We must face the fact that greater difficulties than those faced by any other advanced country in the world lie ahead of us.

Choi passed the 29th Administrative Examination in 1985. It took 38 years from starting as an economic bureaucrat to becoming the head of economic policy. We hope he will generously demonstrate the skills he has honed over the years one by one.