Moon’s Win Shows Public Support for Big Spending to Combat Virus
Moon’s Win Shows Public Support for Big Spending to Combat Virus
(Bloomberg) -- A landslide election victory for President Moon Jae-in’s parties shows resounding support among South Koreans for ramped-up government spending supported by the central bank to ride out the economic impact of the coronavirus pandemic.
South Korea’s parliamentary elections took place this week with the government’s latest stimulus package already outlined for them to effectively vote on. The package, officially announced Thursday, offers emergency cash handouts to help families make ends meet during the crisis and is part of a second extra budget following a record-breaking annual budget.
The Bank of Korea has been playing its part, too. It has cut interest rates by half a percentage point and has unveiled a slew of measures to secure liquidity and assist corporate financing, including its first ever loans to individual securities firms announced Thursday.
South Korean voters have embraced the teamwork, giving Moon’s Democratic Party of Korea and another loyal party a total of 180 seats in a 300-member parliament. The highest voter turnout in 28 years also removes doubts about popular support for Moon and the way he’s dealing with the economic impact of the virus.
Earlier in the day, the central bank released the names of candidates, including a staunch Moon advocate, to join its policy board next week, in a move economists said would be supportive of government stimulus.
“The new monetary policy board lineup signals an increasing likelihood of policy coordination between the Blue House, Ministry of Economy and Finance, and the BOK,” Angela Hsieh, a Barclays Bank economist, wrote. “This is especially critical during the emergency phase, when swift coordinated policy efforts between different agencies are urgently needed.”
The second extra budget unveiled by the finance ministry is worth 7.6 trillion won ($6.2 billion) and will pay for emergency cash handouts to 14.8 million households. It follows another emergency budget worth 11.7 trillion won that passed just weeks ago.
BOK Governor Lee Ju-yeol has already made clear he’s willing to work with the government. He’s met with Finance Minister Hong Nam-ki a couple times since the virus outbreak and said repeatedly that the bank was in talks with the government on ways to support the economy. The BOK is also backing a government program to extend 100 trillion won in loans and guarantees to small businesses and financial markets.
Stronger Teamwork
While the central bank faced its biggest shakeup in years at a critical moment in the fight against the virus, the recommended board changes suggested even stronger teamwork with the government.
“The nomination of pro-government candidates to the BOK’s policy board could help facilitate a coordinated monetary-fiscal response to the pandemic,” Bloomberg economist Justin Jimenez said. “A supportive BOK could also aid the government’s stimulus efforts, with continued purchases of government bonds and easier monetary policy helping to lower borrowing costs.”
New board nominees include Cho Yoon-Je, an economics professor dubbed the economic brain of Moon’s presidential camp during the election three years ago. Koh Seungbeom, who extends his term as a board member, was a career bureaucrat with the finance ministry and the financial regulator before he joined the BOK in 2016.
Joo Sangyong, a Konkuk University economics professor tapped to join the board, wrote a column a year ago that said Moon’s policy of boosting the economy by prioritizing wage growth still has a “long way to go.”
Suh Young Kyung, a former BOK official, is the pick of the Korea Chamber of Commerce and Industry, an organization supportive of pro-business policies.
Suh headed the Sustainable Growth Initiative unit of the chamber and will help the board execute its monetary policies “with a broader point of view,” a statement from the BOK said.
©2020 Bloomberg L.P.