When your debt is speculation and mine is investment

Cho Hyun-suk

The author is the economy news editor at the JoongAng Ilbo.

One hundred trillion won ($74.86 billion). Written out, it is a staggering sum with 14 zeros. No individual in Korea possesses that much wealth. Samsung Electronics Chairman Lee Jae-yong may be Korea’s richest person, but Forbes estimated his fortune at $34.6 billion as of Wednesday. It takes someone like Zhang Yiming, the founder of TikTok’s parent ByteDance, worth $69.3 billion, to approach that scale.

But one entity says that it will raise that enormous amount in just one year — through borrowing. That entity is Korea.

Last week, the government unveiled a record budget of nearly 821 trillion won for next year, the largest ever in both size and growth. Children born since this September will receive up to 1.2 million won annually until they reach age 18; newly registered married couples will get 1 million won; and monthly child allowances will rise from 200,000 won to 300,000 won. The government also plans to dedicate tens of trillions of won to AI, robotics, biotechnology and other advanced industries.

National debt will consequently rise from 1.41 quadrillion won this year to about 1.52 quadrillion won next year. Despite a semiconductor boom swelling tax revenue by 194 trillion won, debt will increase by more than 100 trillion won. The reason is another pocket the government has created: a 162 trillion won ‘Future Response Fund’.

The Lee Jae Myung administration argues that “if investing can bring greater future returns than repaying the national debt, then investment is appropriate,” as a Blue House official said on Aug. 26.

But households face layers of borrowing restrictions, from debt service ratio rules and controls on total household lending to a 600 million won ceiling on mortgages. Citizens are told not to borrow to speculate, but the government itself keeps borrowing aggressively. It is a double standard worse than the familiar Korean accusation: “If you do it, it is wrong; if I do it, it is right.”

However, a crucial difference exists between household and government debt. Households must repay what they borrow themselves. Government debt, on the other hand, is not repaid by the civil servants who draft budgets or lawmakers who approve them. The public must ultimately pay the principal and interest. One way to obscure that reality is to borrow more, postponing the day when spending must be matched by revenue. Borrowing may conceal the gap temporarily, but it cannot erase the obligation that will ultimately fall on taxpayers.

Cash handouts proliferated during election seasons after emergency relief payments began during the Covid-19 pandemic in 2020. They worked initially. Not anymore. People have learned that receiving several hundred thousand won from the government does not significantly improve their lives. They have also experienced the greater dangers of soaring housing prices and rising inflation and interest rates fueled by indiscriminate liquidity. That helps explain why the president’s approval rating has plunged into the 30 percent range despite a budget overflowing with cash benefits.

The bill is already coming due. Under the government’s fiscal management plan, national debt will exceed 1.5 quadrillion won next year, pass 1.6 quadrillion won the following year and reach the 1.7 quadrillion won range by 2030.

In “The Crisis of Democratic Capitalism” (2023), Financial Times chief economics commentator Martin Wolf warns against false reformers who claim to fill a swamp while actually making it deeper and wider. He adds that anyone who believes that there is no limit to how much debt a country can create should study Argentina’s history: Debt accumulation cannot continue indefinitely.

On Aug. 30, President Lee wrote on X about rising interest rates.

“For the future of the country and the hopes of the next generation, we must eliminate the dangers of passing around the ticking bomb of real estate speculation and another lost 30 years,” he wrote.

Remove the words “real estate speculation,” and the warning applies perfectly to Korea’s public finances today.

The government may be able to pass its debt on to its successor. Public opinion is unlikely to be nearly as patient. That is why the eventual reckoning for a government addicted to debt-financed bets is already cause for concern.