The Peninsula

Public Anxiety Around National Debt

What Happened

• The ruling Democratic Party’s presidential candidate Lee Jae-myung proposed another round of universal payments to help citizens overcome the economic challenges posed by COVID-19.
• However, Prime Minister Kim Boo-kyum and the government claimed that they do not have the capacity to provide another round of universal relief funds.
• A nationwide public poll showed that 60.1% of Koreans agree with the government’s position.

Implications: South Koreans are sensitive to risks that accompany high levels of public debt. This sentiment was on display when the public turned against another round of relief payments when the framing of the discussion turned to government borrowing. This is a shift from April 2020 when 58.3% of Koreans supported the first universal COVID-19 relief payments from the government. At the time, the conversation was focused on providing people with relief from the economic difficulties created by the pandemic. Subsequent rounds of emergency relief grants to the public were positively received until Lee’s recent proposal when the focus of the discussion turned to growing levels of public debt.

Context: South Korea experienced a financial crisis in 1997 when international investors withdrew funds when they lost confidence in the country’s ability to repay their debt. This experience left the Korean government and public sensitive to measures that increase the public debt. Recently, the International Monetary Fund (IMF) warned that South Korea’s debt-to-GDP ratio could increase to 53.2% in 2021 and rise rapidly over the next 5 years. Although Korea carries a lower debt burden than peer economies, the public is worried that deficit spending might make another financial crisis more likely.

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

Korea View was edited by Yong Kwon with the help of Janet Hong, Yubin Huh, and Mai Anna Pressley. Picture from the flickr account of Republic of Korea