Why not go back to the basics?

I hope the government goes back to the basics — and keep its promise — before it’s too late.

Chung Un-chanThe author, a former prime minister and former president of Seoul National University, is the chairman of the Korea Institute for Shared Growth.

The failed bid for the 2030 World Expo was not a “defeat after a hard fight” but a colossal loss from the start. Regrettably, the government dashed Busan residents’ and other Koreans’ strong hopes for the international trade fair. They deserve a deep consolation.

President Yoon Suk Yeol came forward and apologized for the government’s botched attempt to host the Expo in the second-largest city in Korea. His apology might help relieve the people’s sadness and disappointment. But it could not convince them of the inevitability of the failed bid. Everyone with a sense of international affairs knew it was an uphill battle from the beginning. Who would prefer Seoul’s promise of economic assistance and cooperation with other countries in the future over Riyadh’s commitment to share its oil money with them now?

The lead-up to the botched bid testifies to our government’s critical lack of information and diplomatic skills. That must not be left unattended. Who really inflated the president’s and the people’s dream for the Expo, and who misled them until the last minute by blindly portraying the competition as a 49-51 race? These questions should be answered. The can-do spirit the country has been proud of was the driving force behind Korea’s marvelous economic elevation. But Korea is a developed country now. It is time to reflect on the unfettered spirit of challenge and show a mature image of the country to the rest of the world.

As an economist, I am deeply concerned about whether the government really conducted a deliberate cost-benefit analysis of Busan’s bid for the Expo. And I wonder if the government only cared about the political gains expected from the Expo if Busan succeeded in hosting it. Just think of the pitiful staging of the World Jamboree in Saemangeum, most likely in return for regional development.

Another question is what promises the government made to other countries to draw their support for Busan. We need to find out if the government pledged to help their development with conditions attached or without. The Expo bid is over, but the apparent bills from the bid will torment the people for a long time if the government has made hefty promises just to attract their votes.

Bank of Korea Governor Rhee Chang-yong answers questions from reporters after a Monetary Policy Committee meeting on the base rate, Nov. 30.

Such an absurdity is revived in drawing up economic policies, too. For instance, the mismatch between the government’s economic policy and the Bank of Korea’s (BOK) monetary policy has reached a serious level. After the central bank raised the base rate several times since April 2022, the rate reached 3.5 percent in January this year. Public outcries erupted here and there.

Under such circumstances, the government should deal with the unavoidable consequences of the rate hike. For example, it must help debt-ridden companies and individuals to “restructure” their financial obligations in an orderly way or take care of the livelihood of the general public, who should shoulder the burden. That’s what a government must do. But strangely, the Yoon administration distorted the market rate by pressuring commercial banks to lower their rate and threatening to look into their possible violations of the law through the Financial Supervisory Service and the Fair Trade Commission. That’s a misguided market intervention.

In the meantime, the central bank has frozen the policy rate three consecutive times since February — in the first half alone. Whenever the bank froze the rate, it declared to uphold monetary tightening. However, the BOK only sent the signal that it will not raise the base rate. Coincidently, the inflation rate took a rebound in August after a steady decline. The upsurge in housing loans from September due to the central bank’s reluctance to lift the base rate only helped swell the mounting household debt. In other words, the central bank missed the timing for a rate hike. And yet, the bank adheres to the 3.5 percent rate even now. The BOK has lost trust in the market, and its monetary policy didn’t work.

Meanwhile, the gap between Korea’s base rate and the Fed’s rate, currently at 5.5 percent, has widened to two percentage points. No one would dislike low interest rates. But if the base rate is detached from the U.S. rate, it’s a serious problem. The rate gap can shake our economy in an alarming way.

In the face of sharp inflation, the Ministry of Economy and Finance has started to check the prices of a few basic necessities. However, the producers responded by reducing the quantity of their goods rather than raising their prices. As a result, customers cannot feel any price stabilization effect. That also constitutes an ill-advised intervention in the market. Why is the government going in the opposite direction after vowing to uphold the market? I hope the government goes back to the basics — and keep its promise — before it’s too late.

Translation by the Korea JoongAng Daily staff.