hankyoreh

Seoulites in Seoul’s Mangwon Market on May 13, the day when city residents were paid basic disaster allowances electronically. (Kim Hye-yun, staff photographer)

Policies to provide disaster relief allowances out of concerns over the economic impact of the COVID-19 pandemic are being adopted all around the world. But while different countries have been coming out with measures based on their individual financial conditions and social consensus, administrative skill in responding to disaster situations has also emerged as a key factor. In particular, the resident identification systems and financial and IT infrastructures in different countries have been factors determining the speed with which support is provided.

A comparison of the South Korean and Japanese cases shows a relatively clear difference. On Apr. 30, both sides’ parliaments approved a supplementary budget to provide emergency disaster relief to all citizens struggling financially as a result of the pandemic. Within 19 days, 79% of eligible households in South Korea had received their basic disaster allowances and begun spending them. In contrast, only 19% of Japanese local governments had begun payments by the same day, while 72% were still mailing out application forms, the Japan Times reported. Even though they had both made the same decision on the exact same day, the money was already being spent in South Korea, while many people had not even had a chance yet to apply in Japan.

The biggest factor in the difference between South Korea and Japan has to do with their rates of credit card usage and identity verification systems. Since the IMF bailout of 1997, South Korea has been effectively encouraging credit card use through income tax deductions to promote openness about income sources and boost domestic consumption. As a result, the proportion of credit card use in private consumption expenditures rose from 13% in 2000 to 72% as of 2019. In contrast, the respective rates of cash-based transactions as of 2018 stood at 20% for South Korea, 26% for the US, and 48% for Japan.

Taking advantage of this high rate of credit card usage, South Korea opted for an approach where users “charge” their credit or check cards with payments from the state’s supplemental. According to World Bank figures on current economic responses to the coronavirus in 181 countries, South Korea is the only one to have adopted this approach. In addition to the ability to pay people immediately, other advantages of the “charging” approach include the ability to determine eligible business types, regions, and deadlines for fund usage -- all of which can be “programmed in” to suit the relevant needs and aims. The system was designed by South Korea with an eye toward promoting household consumption and supporting small businesses.

Some risks associated with using cash payments include the potential for them not to actually be used for consumption, but to be applied toward savings and repayment of debt. Indeed, after the US, Japan, and Taiwan all adopted cash payments at the time of the global financial crisis in 2008-2009, a debate ensued over their efficacy in stimulating the economy.

South Korea’s resident registration system, which assigns an identification number to all individual residents, has also been a big help. Most countries have serial numbers for particular purposes -- such as social security, driver’s licenses, and/or passports -- but attempts at integration remain a recent development. In contrast, South Korea assigned numbers to all citizens under a centralized administrative structure to allow for the identification of spies following the “Kim Shin-jo incident” (an attempted North Korean assassination plot against President Park Chung-hee) in 1968.

While some have contended that the number itself is connected to too much personal information and is potentially a violation of privacy, and others have argued that the use of the same number in every situation poses risks, the system has been a boon for contact tracing and the payment of disaster relief amid the coronavirus response.

Japan launched its own integrated Individual Number (“My Number”) system in 2015, but numbers are not compulsory, and the adoption rate stood at just 16% as of early May 2020. With a My Number required to apply online for the disaster relief allowance of 100,000 yen (US$928) per person, many people without the numbers have been receiving applications by mail and submitting them to government offices.

Some countries have been opting to provide targeted support to low-income demographics and those who have been hardest hit economically rather than paying across-the-board funds to all citizens. In Canada, those whose income has decreased can apply by internet or telephone to receive CAD 500 (US$369) a week for up to six weeks to their bank account or by check.

In the US, disaster relief funds of US$1,200 each are being provided to the 94% of taxpayers with an annual income of US$75,000 or lower. Recipients can choose between a mailed check or a bank account transfer used for tax reporting to the Internal Revenue Service (IRS). The US previously used the same approach to provide economic stimulus payments of US$300 and US$600 to taxpayers in 2001 and 2008, respectively.

In many cases, assistance with companies’ management and personnel costs have been provided instead of direct cash payments to individuals. Germany and France have been providing operating costs to freelancers, self-employed persons, and employers with 10 or fewer workers; Italy has been providing assistance with 80% of worker wages for up to nine weeks as a way of preventing layoffs. Advantages of selective support based on assigned standards for financial losses include their consideration of equity and low financial burden. At the same time, the system has a clear disadvantage in terms of the time needed to select recipients and provide payments.

With relatively smaller total populations, Singapore and Hong Kong have chosen to provide universal support. Singapore has been paying SGD 600-1,200 (US$427-853) -- depending on income level -- to all citizens by bank transfer or mailed checks. The Hong Kong government announced plans in February to pay HKD 10,000 (US$1,290) to around 7 million adult residents, although the date of payment is now predicted to fall after the third quarter of this year.

By Kim Byeong-cheol, reporter for CoinDesk Korea

Please direct comments or questions to [english@hani.co.kr]