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By Park Hyong-ki
A series of market interventions through regulations and policies is undermining both trust and confidence in the economy, according to analysts and industry sources.
A state regulator's recent measures aimed at cancelling some portion of debts held by low and middle-class households are raising concerns that such a move will create moral hazards.
Also, the state-enforced reductions in credit card transaction fees will create side effects.
Therefore, the intervention will do more harm than good to the economy, given that the regulator and the government are just implementing "short-term prescription measures," analysts say.
"They are feeding prescription drugs into the market to alleviate pain in the short term. And this is already creating side effects which will negatively impact the economy in the long run," said Kim Tae-gi, an economist at Dankook University.
"What's worse is the government said the economy is doing fine. But it is intervening in the market and enforcing such measures as it did in the old days when the economy faced a crisis. Trust in the economy is at stake."
The Financial Services Commission (FSC) recently announced that it will implement measures to write off up to 95 percent of debts held by low-income households and the elderly.
It will also seek to cancel 70 percent of debts by mid-income households.
This is part of efforts to help the insolvents get back on their feet.
However, industry sources say all it is doing is trying to draw votes through populism politics ahead of the general election in 2020, without considering the consequences.
For example, the card transaction fee reduction for small businesses was unnecessary, given that they have already been paying a near zero rate.
This is because small businesses have received tax cuts and returns on the back of the National Tax Service's policy.
"They have gotten tax returns more than enough to cover their card transaction fee payments. I don't see how the current environment is creating fair competition," said an industry source.
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Another financial industry source said the government is putting its hands on too many things, disregarding market principles.
"The government should be patient and let the market players create value and grow under a free market system, while severely punishing those that cross the line," the source said.
The FSC said the fee reduction will help small businesses save nearly 800 billion won ($710 million) a year.
Beginning January 2019, small business owners with annual earnings of 500 million won to 1 billion won will have the fee reduced to 1.4 percent, down from 2.05 percent. Those that earn between 1 billion won and 3 billion won will be charged 1.6 percent on customers' credit card purchases, down from 2.21 percent.
Businesses with earnings of 3 billion won to 50 billion won will have to pay 1.9 percent, down from over 2 percent.
