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Debate heating up over 'basic disaster income'

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Finance Minister Hong Nam-ki
Finance Minister Hong Nam-ki

Hong opposes cash handouts due to 'mismatch' concern

By Lee Kyung-min

Whether the government should offer cash handouts to citizens whose livelihoods have been disrupted by the COVID-19 outbreak is emerging as a key issue, with top policy makers and heads of municipal governments remaining far apart over what some claim is a" vote-seeking, populist move" ahead of the general election.

Under the so-called "basic income in the event of a disaster," many municipal governments are moving to give some form of cash handout to their residents whose lives have been in tatters due to the coronavirus pandemic.

The issue has remained in stalemate for weeks due mostly to concerns over fiscal soundness and mounting government debt, already set to rise sharply following a supplemental budget drafted to counter fallout from the drawn-out U.S.-China trade dispute.

Gyeonggi Governor Lee Jae-myung
Gyeonggi Governor Lee Jae-myung
Yet calls are gaining traction fast after Gyeonggi Governor Lee Jae-myung announced March 25 that the provincial government will give 100,000 won ($81) vouchers to all residents next month to help them cope with the economic fallout from the coronavirus.

Over 13.26 million residents will be eligible to receive the vouchers, or what the provincial government calls a regional currency.

But they will be limited to stores and shops run by small- and medium-sized enterprises (SMEs) in the region and will not be accepted in large malls, retail and department stores, nor entertainment facilities. The coupons will also expire three months after being issued.

The project will cost about 1.36 trillion won, and the money will be pulled from provincial government funds set aside for disaster responses and local development.

Lee urged the central government to promptly introduce a similar program, saying he would hope Gyeonggi's initiative would lay the ground work for expanding the emergency measure nationwide whereby 1 million won would be offered to all Korean people.

The move fueled expectations that some form of cash payout would be in order, given the severity of the economic fallout as recognized by the government.

Yet, unusually vocal opposition was expressed by Finance Minister Hong Nam-ki, who said disorganized policy implementation would lead to a "mismatch."

"Giving money when there is no place to spend it could result in a policy mismatch," he said on Facebook, March 25.

Implicit in his remark is the recognition of limits to spurring consumption amid the "sudden stop" of the economy, illustrated by movement bans and commercial facility shutdowns.

Countermeasures should be implemented in the right order, to minimize the economic fallout, he added.

"As urgent as it may be, priority should come in the order of quarantine, making masks available, a relief package involving fiscal and tax benefits, and financial support to spur regional economies, currency swaps and financial stability."

Similarly, economists say Lee's move can be criticized for not distinguishing between those most in need from those relatively well-off, not to mention a lack of measures to alleviate fiscal soundness concerns.

"It is hard to say how the policy would induce the desired effect given it fails to address how best to help those hit hardest such as small merchants and low-income earners recently laid off or who have had their paycheck reduced, as opposed to relatively unaffected salaried workers, for example," Seoul National University economist Kim So-young said.

Cheong Wa Dae is expected to discuss this issues at an Emergency Economic Council meeting presided over by President Moon Jae-in early this week.

Whether the money will be given to low-income people or to all people remains to be seen.


Lee Kyung-min lkm@koreatimes.co.kr


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