KDI Says, “Big-scale Fiscal Expansion Plan Needs to be Executed Cautiously”

KDI Says, “Big-scale Fiscal Expansion Plan Needs to be Executed Cautiously”. August. 12, 2004 21:52. by Young-Hae Choi yhchoi65@donga.com.

The state-run Korea Development Institute and Uri Party officials argued over the ruling party’s fiscal expansion policy on August 12.

This originated when KDI officials stated a critical opinion on the short term plan of supporting the economy at the economic policy meeting held with Uri Party lawmakers including floor leader Chun Jung-bae, at the KDI in Hongreung, located in Dongdaemoon, Seoul.

Head of the Macroeconomics Team Cho Dong-chul said, “The basis for the present fiscal policy is somewhat appropriate considering the depression of the domestic demand and the accomplishments for the early execution on finance.” He also refuted, “As the recent year’s economic depression is impacted by the total supply, the large-scale policy for the short term economic support plan, which accompanies inflation, should be executed with great prudence.”

He also confessed, “A deficit exceeding seven trillion won, which pertains to one percent of the GDP, is too much,” and stated a critical view of the Uri Party’s seven trillion won financial deficit policy.

Right after Mr. Cho’s report, there was a flash of dilemma among the faces of the participating congressmen, including the floor leader Chun. Congressmen Kang Bong-gyun, who is a former KDI chief, rebuked, “What is the use if KDI keeps talking about a mid to long term counter plan when our current situation is difficult in the short run?”

Congressmen Woo Jae-chang and Lee Jong-geol also took sides, saying, “The basis is ambiguous for saying that the short term economic support plan needs to be executed with great caution.”

Also, Congressmen Kim Hee-sun demanded an explanation for the Chief of Korean Economic Research Institute Jwa Seung-hee’s claim that, “Korea’s economy is losing its identity being caught in a trap of ‘equalitarianism’,” by saying, “Those kind of remarks are supposed to come from a representative of the ruling party. As the ruling party is talking about identity, how can a person who specializes in economy say such a word? ”

Accordingly, Mr. Cho said, “I do not think that our economic situation requires a large-scale economic support plan,” and did not concede, adding, “Although the situation for our domestic economy is difficult, using an economic support plan is very dangerous in a situation in which the potential growth rate is decreasing.”

Mr. Cho, in response to the question, “What is a short term plan?,” replied, “In the short run, the currency and the domestic economy have to be in harmony, and above all, if there is any uncertainty while pushing the reform policy, then those factors should be eliminated. ”

He also pointed out, “For example, most of the people agree on the reinforcement of the real estate holding tax but are afraid because they do not know how much tax they should pay. We should make these uncertainties clear.”

The Uri Party officials did not further argue against Mr. Cho’s refutation after this statement was made.

Meanwhile, when the Vice-Minister of Finance and Economy, Park Byung-won reported the “counter plan on the job creation situation,” the congressmen from the Uri Party said, “There is a big discrepancy between the actual economy and the government policy,” and rebuked, “Give us an actual alternative plan instead of a desk theory.”