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Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki elaborates on the South Korean government’s supplementary budget for overcoming the novel coronavirus crisis at the Government Complex in Sejong on Mar. 2. (provided by the Ministry of Economy and Finance)

The South Korean government plans to allocate a supplementary budget of 11.7 trillion won (US$9.87 billion) toward defeating the novel coronavirus. It is to be the fourth supplementary budget adopted under the Moon Jae-in administration and the largest in seven years.

But critics are questioning whether the amount is adequate to respond to the effects of the virus, which is starting to spread globally. In addition to objections concerning blind spots in victim aid and the appropriateness of the amount, some are criticizing the failure to come up with bold, unconventional policy approaches that can respond to such an unprecedented crisis.

In an ad hoc Blue House Cabinet meeting on Mar. 4, the administration approved a “supplementary budget plan for minimizing and swiftly overcoming coronavirus ripple effects,” which it planned to submit to the National Assembly on Mar. 5. Speaking during a preliminary briefing on the budget at the Government Complex in Sejong on Mar. 2, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki explained, “We did our best to include measures to provide aid for overcoming damage resulting from the coronavirus and preserve momentum in the economy while reviving consumption, which has been sluggish amid the outbreak.”

Totaling 11.7 trillion won, the supplementary budget plan includes 8.5 trillion won (US$7.18 billion) in increased expenditures and 3.2 trillion won (US$2.7 billion) to make up the difference from inadequate tax revenue.

The increased government expenditures include 2.3 trillion won (US$1.94 billion) toward reinforcing the disease prevention system, 2.4 trillion won (US$2.03 billion in support to SMEs, 800 billion won (US$675.3 billion) toward reviving local economies, and 3 trillion won (US$2.53 billion) in public welfare and employment support. Two trillion won is to go toward emergency management funds for SMEs, with another 2 trillion (US$1.69 billion) in vouchers for low-income residents and children to spend during the first half of the year. The tax revenue supplementation includes 2.5 trillion won (US$2.11 billion) to offset the anticipated shortfall in tax revenue as the gross domestic product (GDP) growth rate remains below last year’s predictions, along with 600 billion won (US$506.4 million) in tax expenditures for the coronavirus and 100 billion won (US$84.4 million) in increased tax deductions for new growth and source technology industries.

The supplementary budget plan appears to reflect several different factors, including the upcoming National Assembly schedule, the need for prompt support to address damage resulting from the virus, and the fact that it is the first quarter, with the 513 trillion won (US$432.92 billion) principal budget only just beginning to be allocated. The administration focused on the central goal of providing support for damage from the virus and did not include any large-scale social overhead capital (SOC) projects. Not only would it have been difficult to identify new businesses under the tight allocation schedule, but another underlying aim was to avoid political controversy as much as possible in order to get the supplementary budget passed at the regular session on Mar. 17, the final March session of the National Assembly.

“This supplementary budget involved committing 8.5 trillion won (US$7.17 billion) in increased expenditures toward direct support for coronavirus damages alone, so it’s over double the [4 trillion won, or US$3.38 billion in] supplementary budget support for MERS [Middle East Respiratory Syndrome],” said Second Vice Minister of Economy and Finance Koo Yun-cheol.

In spite of the explanation, questions have been raised about whether the supplementary budget will be capable of fully absorbing the shock from the virus. To begin with, critics are describing the budget’s scale and efforts to identify potential support projects as “inadequate.”

“There seem to be a lot of blind spots in terms of support measures for people living below the poverty line whose jobs and livelihoods are in imminent danger, including special employment and irregular workers,” said Jeong Se-eun, a professor of economics at Chungnam National University.

“It would have been better to increase the budget a bit more to adequately incorporate measures for these blind spots,” she suggested.

Woo Seok-jin, an economics professor at Myongji University, said, “It feels like they’ve hurried to trot out the familiar policy approach.”

“It’s basically a ‘voucher budget’ aimed at increasing domestic consumption, but it’s unclear whether a measure at this level is going to restore consumption at a time when economic activities have basically ground to a halt due to the coronavirus shock,” he said.

Others lamented the lack of imaginative policy that departs from the conventional practices of financial institutions. Their argument is the South Korean government’s approach appears all too complacent next to the actions of the US Federal Reverse System (Fed), which abruptly lowered its benchmark interest rate by 0.5 percentage points at an emergency meeting on Mar. 3.

“In an extraordinary situation, you need to employ extraordinary policy measures, but it’s different to sense from the current supplementary budget plan just how seriously our financial authorities are taking the current situation,” said Park Bok-yeong, an economics professor at the Kyung Hee University College of International Studies.

“I’m well aware of the financial authorities’ serious reservations about cash-based forms of welfare, but it’s unfortunate that the new budget doesn’t include any kind of fresh policy such as basic disaster income,” he said. The Hong Kong government previously responded to the coronavirus by allocating a budget that included cash payments of HK$10,000 (US$1,287) per person to approximately 7 million permanent residents aged 18 and over. This basic income is limited to periods when a disaster is in effect, and it remains to be seen whether it has an immediate effect on consumption.

Many argued the situation calls for additional measures to gird against a rapid downturn in the global economy and production difficulties associated with a collapse in the global value chain.

“Once a crisis begins in production terms, the shock could end up being too severe to come up with a suitable response plan,” warned Joo Sang-young, a professor of economics at Konkuk University. “We need to start thinking now about additional response measures, including a large-scale second supplementary budget.”

Park Bok-yeong said, “If different governments start closing their borders and adopting other protectionist policies because of the coronavirus, the consequences for South Korea’s export-dependent economy could be unimaginable.”

“In addition to fiscal measures, we also need proactive economic diplomacy efforts, including participation in coordinating with other countries’ policies,” he suggested.

By Noh Hyun-woong and Lee Kyung-mi, staff reporters

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