Bills will come due after local elections

Audio report: written by reporters, read by AI

Cho Min-geun

The author is an editorial writer at the JoongAng Ilbo. 

“The defining feature of this administration is that it does not hesitate or look over its shoulder. It does not dwell on precedents. It simply looks for the most effective method.”

That was what a senior government official said shortly after the decision was made in March to impose a ceiling on oil prices. It was an answer to the question of whether the measure was not excessively unconventional. The official did not go out of the way to deny that the decision had been made in a top-down manner. But then again, this was hardly limited to the oil price ceiling. This administration has shown a particularly strong preference for bold, decisive measures when responding to current issues. A representative example was its decision to place the entire city of Seoul under the land transaction permit system after home prices began stirring, particularly in the Gangnam belt.

Such measures are difficult to produce through the normal policymaking process of the bureaucracy. That is probably the context in which Minister of Trade, Industry and Energy Kim Jung-kwan defended the oil price ceiling’s effect on stabilizing prices while saying that he personally found it “unappealing.” In the case of the resource security crisis alert issued by the Industry Ministry, there are four stages: attention, caution, alert and serious. Internally, the ministry has a manual of policy options corresponding to each stage. An oil price ceiling is a measure that can be considered only at the “serious” stage, the worst-case scenario. There is a reason for that. Direct government intervention in prices has an immediate effect, but its side effects are just as large. It is a kind of drastic prescription used only when there is no other option. The cost of compensating refiners for losses is one issue, but it also makes demand management — which should be the most important task in the early stage of a crisis — more difficult. Why, then, do such bold measures keep coming? The likely reason is that, with the June election approaching, political effect has been prioritized over policy cost-effectiveness.

One of the places watching this policy clock most closely is the stock market. The Kospi, which was in the low 4,000s at the start of the year, has surged even amid the Middle East conflict and is now nearing the 8,000 mark. The biggest driver has been the remarkable performances of Samsung Electronics and SK hynix, which have ridden the boom in AI data centers. But another factor lies beneath the surface: a “government that does not hesitate.” Among many investors, a kind of belief — if not quite a belief — has taken hold that the government will somehow support the stock market until the election. A number of government policies to boost the market, along with the National Pension Service (NPS), have helped create this mood.

The NPS manages target allocations for asset classes such as domestic and foreign stocks and bonds under a mid-to-long-term asset allocation plan decided by its Fund Management Committee. When the share of a particular asset deviates significantly from the target, the fund sells it, and when an asset is underweight, it buys more. This is called “rebalancing.” Through this process, the fund realizes gains when the market is overheated and buys undervalued assets to pursue long-term returns and stability. At the start of the year, the Fund Management Committee raised the target allocation for domestic equities and temporarily suspended rebalancing — even though its domestic stock holdings had already reached the upper limit. Investors welcomed the move immediately.

But concerns were also raised that such erratic management could shake the stability of the pension fund. Korea accounts for only the high-1-percent range of global stock market indexes. As the pension fund has grown in size, it has naturally reduced the domestic share of its portfolio and increased the share of overseas investments. But once the domestic investment share is raised in this way, it will not be easy to reduce it again amid political pressure. Already, ahead of this month’s decision on the pension fund’s mid-to-long-term strategy, calls have begun to emerge for a further increase in the domestic investment share. For the NPS to raise its domestic stock allocation, there must be confidence that the Korean stock market has entered a structural and sustainable upward phase, not merely a temporary boom.

Ultimately, the problem is what comes afterward. In that sense, a recent Facebook post by Kim Yong-beom, presidential chief of staff for policy, titled “A long-term strategy for the AI era,” is meaningful. The highly volatile phrase “public dividend” sparked controversy, but what caught my attention personally was the premise and assumptions behind it. Kim said the current semiconductor boom and rise in stock prices may not simply be an industry recovery within a cyclical upswing, but part of a restructuring of the industrial order — in other words, a “regime shift.” If that is the case, the excess tax revenue the government expects may also be structural rather than one-off.

With bills for various policy costs expected to arrive one after another after the election, the excess tax revenue expected this year is a welcome rain for the government. It is likely the “reliable fallback” that allowed the administration to push ahead with bold policies without hesitation, and the reason arguments for expansionary fiscal policy keep appearing day after day. But as Kim himself acknowledged, the idea that this situation can become structural remains, for now, only an optimistic hypothesis. Premature optimism by policymakers can leave aftereffects as severe as bold policies themselves. Rather than leaning on optimism, what is needed now is meticulous policy design to turn that optimism into reality. 

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.