If the Ministry of Economy and Finance Is Split... "Economic Planning Board and Ministry of Finance" Preferred Over "Planning and Budget Agency and Ministry of Finance and Economy" [Economic Policy Zoom-In]

The Lee Jaemyung administration included the "splitting of the Ministry of Economy and Finance" as a campaign pledge during the presidential election and has maintained this stance since taking office. Initially, most discussions focused on separating the ministry into the Planning and Budget Agency and the Ministry of Finance and Economy, as was the system under the Kim Daejung and Roh Moo-hyun administrations. However, recently, there has been a growing movement to revert to the pre-Kim Youngsam administration system, which separated the Economic Planning Board and the Ministry of Finance.

The main policy authorities held by these two key economic ministries were largely budget, taxation, and finance. Additionally, the ministry led by the Deputy Prime Minister for Economic Affairs was responsible for overall economic planning (strategy) and policy coordination among ministries. While there were also functions such as international finance (foreign exchange), treasury, and public sector (including oversight of public institutions), these were more about stable maintenance or management rather than major structural changes.

Up until the Roh Tae-woo administration, the system consisted of the Economic Planning Board (overall economic planning and budget) and the Ministry of Finance (taxation and finance). Under the Kim Youngsam administration, the Ministry of Finance and Economy held all major functions: overall economic planning, budget, taxation, and finance. The Kim Daejung and Roh Moo-hyun administrations adopted a system of the Planning and Budget Agency (budget and public sector) and the Ministry of Finance and Economy (overall economic planning, taxation, and finance). Since the Lee Myungbak administration, the system has consisted of the Ministry of Economy and Finance (overall economic planning, budget, and taxation) and the Financial Services Commission (finance).

The Economic Planning Board: National Strategy and Economic Structural Reform

In short, the Economic Planning Board was responsible for national future strategy and economic structural reform. It was the ministry that formulated and executed the Five-Year Economic Development Plans, which are cited as one of the key factors behind the success of the "Miracle on the Han River." As a deputy prime minister-level ministry, the Economic Planning Board controlled nearly all tasks related to planning, including plan formulation, policy coordination, budget, foreign capital procurement and allocation, and statistical management, enabling seamless policy implementation. In particular, by controlling the budget, it wielded significant influence over all government ministries and even exerted strong influence over private companies through the allocation of foreign capital. The government controlled even the minutest details, such as economic growth rates, sectoral production levels, total investment scale, savings-investment plans, and foreign capital procurement plans.

Yonhap News Agency

The Five-Year Economic Development Plans set major goals for each period, charting the course for economic development and signaling how various social actors?bureaucrats, entrepreneurs, and the general public?should behave. The second plan set targets such as achieving $700 million in exports, promoting import substitution, achieving food self-sufficiency, reforestation, and family planning. The third plan emphasized the construction of heavy and chemical industries, industrial advancement, rapid improvement in science and technology, expansion of educational facilities, and development of the four major river basins. The fifth plan prioritized price stability, aiming to keep inflation within 10%, as well as promoting competition and meeting the basic needs of the people.

In comparison, the Economic Planning Board was an organization familiar with establishing future visions and plans, with a strong reformist tendency, focusing on "how our country should change." The Ministry of Finance, on the other hand, held the nation's financial reins by collecting taxes and overseeing domestic and international finance (including foreign exchange), thus exerting significant influence over the private sector. Terms such as "government-controlled finance" and "Mofia" (a portmanteau of "Ministry" and "mafia") referred to the Ministry of Finance. In reality, it wielded considerable power and was relatively conservative.

The Need for Economic Planning (National Strategy, Structural Reform)

The merger of the Economic Planning Board and the Ministry of Finance into the Ministry of Finance and Economy under the Kim Youngsam administration was intended to break away from the legacy of the military governments, which had planned and coordinated the economy. There was also the argument that the private sector had grown so large that the government could no longer plan and control the economy at will. Nevertheless, the 1997 foreign exchange crisis occurred, and many pointed to the fact that the "super-ministry" of Finance and Economy held all the authority, preventing proper checks and balances, as a key cause. The Ministry of Finance and Economy was eventually split into the Planning and Budget Agency (budget) and the Ministry of Finance and Economy (overall economic planning, taxation, and finance), but even then, due to a negative perception of "economic planning," the core authorities of budget and overall economic planning were separated.

However, regardless of the era, there has always been a need for a powerful ministry to contemplate the nation's future vision and strategy and to drive economic structural reform. This is why, despite initially declaring that it would not formulate an economic development plan, the Kim Youngsam administration released the "New Economy 100-Day Plan" and announced the "New Economy Five-Year Plan." The Kim Daejung administration was preoccupied with overcoming the foreign exchange crisis and restructuring the four major sectors?finance, business, labor, and public sector?leaving little room for future strategy. However, the Roh Moo-hyun administration, recognizing the need for a national vision and future strategy, created and announced "Vision 2030." "Vision 2030," presented by former President Roh Moo-hyun in 2006, outlined plans for achieving both growth and welfare, with the goal of reaching a per capita national income of $49,000 and ranking among the world's top 10 in quality of life by 2030. Similarly, under the Park Geunhye administration, the Ministry of Economy and Finance established the Future Strategy Bureau and the Economic Structural Reform Bureau under the First Vice Minister (responsible for overall economic planning) for the same reasons.

A New Era: The Revival of National Strategy

After World War II, Keynesianism, which emphasized the role of government spending and intervention, gained prominence, and the "welfare state" model became established in advanced countries, leading to an era of "big government." Many newly independent countries pursued economic development plans to rebuild their postwar economies or escape colonial and underdeveloped conditions. In such countries, where the private sector was virtually nonexistent, "big government" was inevitable. The international political context of the Cold War, with its division between the liberal democratic and communist blocs, also demanded "big government."

However, after experiencing stagflation in the 1970s, the United States and the United Kingdom shifted to a "small government" and deregulation (liberalization) approach in the 1980s. This trend expanded globally in the 1990s, ushering in a wave of neoliberalism. With the Uruguay Round and mounting pressure for market liberalization, the World Trade Organization (WTO) was established, and "free trade" became the global norm. The collapse of socialism in 1991 ended the Cold War, and there was talk of the "end of history," with liberal democracy seemingly triumphant.

As is well known, the unprecedented era of "free trade" that lasted for about 30 years began to end with the inauguration of the Trump administration in 2017. Around the world, there is now a demand for "national industrial strategies" to secure future advanced technologies. China's economic hegemony has grown, and its technological ambitions have become more pronounced. In the United States, the forces of America First have strengthened, while China, Russia, and others are pursuing regional hegemony, ushering in a "new Cold War" era. Due to these circumstances, countries around the world once again find themselves in need of "big government."

Economic Planning Board Over Planning and Budget Agency

If we are in a new era that requires national strategy once again, the Economic Planning Board is preferable to the Planning and Budget Agency. The initial push for "splitting the Ministry of Economy and Finance" by the Lee Jaemyung camp just before the presidential election was largely due to the ministry's strong opposition to supplementary budgets and policies such as the "KRW 250,000 payment to all citizens." President Lee Jaemyung, as a candidate, even stated that "the Ministry of Economy and Finance is acting like a king among government ministries." It is time to move beyond emotional or short-sighted perspectives such as "the ministry is arrogant" and instead discuss, from a broader viewpoint, how to reorganize government ministries while considering national strategy and vision.

As its name suggests, the Economic Planning Board system prioritizes overall economic planning and policy coordination, whereas the Planning and Budget Agency system prioritizes budgeting and places overall economic planning under the Ministry of Finance and Economy. However, today is an era in which the function of establishing and implementing national strategy and vision?comprehensive economic planning?is crucial. Therefore, a system centered on the Economic Planning Board, which prioritizes overall economic planning, is more desirable than one centered on the Planning and Budget Agency.