[Chodong Perspective] Why Economic Ministry Reform Plans Keep Surfacing

Cannot Be Seen as Purely Political
Economic Ministries Share Responsibility
Ministry of Economy and Finance Changed 'Fiscal Soundness' Principle for Convenience
Financial Services Commission Ultimately Failed to Prevent Total Ban on Short Selling
Trust in Prioritizing Market Logic over Political Judgment Damaged

It is well known that the Democratic Party of Korea (Democratic Party) harbors distrust toward economic ministries. This tendency became particularly evident during the Moon Jae-in administration. At that time, appointed officials clashed with economic bureaucrats over economic policies such as expansionary fiscal policy and income-led growth.

Last year, Democratic Party presidential candidate Lee Jaemyung also confronted the Ministry of Economy and Finance over the budget allocation for the Livelihood Recovery Support Fund. When the Democratic Party demonstrated its determination to push forward, even considering a special law, the Ministry of Economy and Finance responded firmly, conducting its own internal legal review. The ministry has consistently opposed the Democratic Party's demand for fiscal expansion, citing fiscal soundness as the reason.

Perhaps as a result, ahead of the presidential election, the Democratic Party is now reviewing plans to reform the Ministry of Economy and Finance. The party is reportedly considering splitting the ministry into the Planning and Budget Office and the Ministry of Finance and Economy, and as part of this, is also reviewing a reorganization of the financial authorities. Commentary on this move is largely summarized as an attempt to "weaken the power of the Ministry of Economy and Finance." It is seen as an effort to bring the economic ministries, which have opposed the Democratic Party's fiscal policies, under control.

However, to view the reform proposals for the economic ministries simply as political retribution is to irresponsibly oversimplify the issue. Let us look back. Economic ministries have historically maintained a restrained stance but have implemented well-vetted policies. In recent years, however, this trust has been significantly eroded. During the 20th presidential election, candidate Lee also requested that the Ministry of Economy and Finance provide nationwide disaster relief funds. The ministry refused at the time, but after the election, it released 50 trillion won in disaster relief funds.

What about the Financial Services Commission? It was a ministry trusted for not ignoring economic logic even when making political judgments. Under the current administration, however, this trust has been broken. The most notable example is the total ban on short selling. When the Financial Services Commission discussed a total ban on short selling in 2023, it conveyed its opposition to the presidential office. There was reportedly strong resistance within the commission, as the situation was not as urgent as a financial crisis.

Nevertheless, under strong pressure from the presidential office, a temporary total ban on short selling was announced in November 2023. The market was significantly shocked. And this was not the end. Although the ban was expected to be lifted in June 2024, the prohibition was instead extended. The credibility and authority of the Financial Services Commission have now fallen to new lows.

An economic official told a reporter, "Looking at issues such as the budget, amendments to the Commercial Act, and the total ban on short selling, I can somewhat understand why the Democratic Party distrusts economic bureaucrats." Although the short selling ban was justified as an institutional improvement, it was a belated admission that the decision did not align with market logic.

The amendment to the Commercial Act follows a similar pattern. Originally, the amendment was a topic raised directly by President Yoon Suk-yeol in January last year. The Ministry of Justice, which has jurisdiction over the Commercial Act, as well as the Ministry of Economy and Finance and the Financial Services Commission, all supported the amendment. There were even internal discussions about preparing a bill. However, after the general election, the government suddenly shifted its stance to focus on amending the Capital Markets Act. After the declaration of martial law, the heads of the Financial Services Commission and the Financial Supervisory Service expressed divided opinions on the amendment to the Commercial Act, reflecting this background.

Is it fair to view the reform proposals for the economic ministries simply as an attempt to "weaken their power"? Such an answer only flattens the issue. The economic ministries must answer first. Why did they yield to decisions that went against market logic? Is the best answer that bureaucrats within the civil service are inevitably subordinate to the decisions of the head of the executive branch? If so, why did they apply principles selectively? They must ask themselves whether they have not undermined trust on their own.