When will the supplementary budget come, in this time of economic turmoil?

Audio report: written by reporters, read by AI

The economic downturn anticipated amid the state of emergency and impeachment turmoil has proven to be even worse than expected. In January, key indicators — production, consumption and investment — declined simultaneously. Industrial output fell by 2.7 percent from the previous month, marking the steepest drop since February 2020 at 2.9% percent during the height of the Covid-19 crisis. Despite the designation of a temporary public holiday, consumption still contracted. Facility investment, a key measure of corporate investment sentiment, plummeted by 14.2 percent, the sharpest decline since October 2020 at 16.7 percent. This “triple decline” underscores that the Korean economy is facing a shock of Covid-era proportions.

A broader look at the past year offers no solace. For the first time since records began in 1960, Korea’s GDP growth rate is projected to remain at or below 0.2 percent for four consecutive quarters through the first quarter of this year, according to a March 4 report by the JoongAng Ilbo, an affiliate of the Korea JoongAng Daily.

Even major corporations are feeling the strain. Homeplus, the country's second-largest hypermarket chain, filed for corporate rehabilitation on Tuesday. The construction sector is also in dire straits, with mid-sized builders such as Shindong-A Construction, ranked 58th by construction capacity, and Sambu Construction, ranked 71st, entering court protection. There is growing anxiety that these could be early warning signs of economic turmoil at the scale of the 1997 financial crisis.

The global landscape is equally fraught. As previously announced, the United States has imposed an additional 10 percent tariff on Chinese imports and reaffirmed its plans for a 25 percent tariff on goods from Canada and Mexico — both key allies. Acting Korean President Choi Sang-mok lamented in a Cabinet meeting Tuesday, “The harsh reality of international relations today is that there are no eternal allies or eternal enemies.” The economic terrain ahead is riddled with land mines.

Breaking the cycle of prolonged low growth requires structural economic reforms and a fundamental shift toward an innovation-friendly society — a long-term challenge requiring persistent effort. In the short term, however, macroeconomic difficulties must be addressed through fiscal and monetary policies. Despite concerns over inflation and exchange rate instability, the Bank of Korea cut its benchmark interest rate last month. The government must follow suit by swiftly passing a supplementary budget to bolster the economy.

While both ruling and opposition parties agree on the need for a supplementary budget, they remain deeply divided over its scale — the ruling party advocating for 15 trillion won ($10.3 billion) and the opposition demanding 35 trillion won. The Democratic Party (DP) must not ignore the warning from Bank of Korea Gov. Rhee Chang-yong, who likened a large supplementary budget to a painkiller and cautioned against excessive spending exceeding 20 trillion won. A compromise within the 15 to 20 trillion won range, as proposed by the central bank, should be reached without delay. Both parties must refrain from wasteful cash handout programs.

The opposition’s decision to boycott the consultative body between the government, ruling party and opposition over the acting president’s delay in appointing Constitutional Court Justice nominee Ma Eun-hyuk is misguided. As previously noted, speed is critical in passing this supplementary budget. A phased approach could be considered. First, pass an initial budget focused on agreed-upon projects and then assess the economic situation in the latter half of the year to determine whether a second round of supplementary spending is needed. If the DP’s emphasis on prioritizing people’s livelihoods and resisting reckless economic policies is sincere, it should return to the negotiation table and first reach an agreement on the supplementary budget.

Translated using generative AI and edited by Korea JoongAng Daily staff.