[Actually] Lee Jae-myung and Yoon Seok-yeol's 'National Debt Solution'

The Ministry of Strategy and Finance recently submitted a 14 trillion won supplementary budget bill and a supplementary budget bill to the National Assembly.

The supplementary budget includes 11.5 trillion won in support for small businesses.

Although the results are different, both the ruling and opposition parties are arguing that the amount of the supplementary budget is small.

Democratic Party Lee Jae-myung and People's Strength Yoon Seok-yeol, both candidates, are of the position that the size of the supplementary budget should be raised several times.

The problem is finances.

This issue was also mentioned in the second broadcast debate.

At first glance, it is not easy to understand what is being said.

It is necessary to consider the context in the past. 

Candidate Jae-myung Lee has said several times that Korea's debt level is not as high as that of advanced countries, so it is okay to borrow additional debt to further relieve the coronavirus-related finances.

On the other hand, Candidate Seok-Yeol Yoon is in a position to raise funds through 'spending restructuring' rather than incurring additional debt because the country's national debt growth rate is very high.

Furthermore, he added that he would establish a 'financial rule' to solve the debt problem.

In the end, the two candidates fought over the issue of "Is it possible to achieve the pledges, including the corona supplementary budget, without increasing debt?"

First of all, if the supplementary budget is to be tripled from the government proposal, it will have to issue much more government bonds, and the national debt will increase that much.

The Ministry of Strategy and Finance announced a plan to issue an additional 11.3 trillion won of government bonds while preparing a 14 trillion won supplementary budget plan.

It was analyzed that the national debt is 1,075 trillion won, increasing by 50.1% of GDP.

How are the two candidates approaching the national debt issue raised by the supplementary budget issue?

We fact-checked both candidates' national debt solutions.

Candidate Jae-myung Lee, in a meeting with small business owners in December of last year, said, "Compared to advanced countries, Korea's level of support for Corona is insufficient, and you can free up more money."

Responding to criticism that the national debt would increase significantly, Lee countered, "Is there a problem if the national debt ratio (to GDP) exceeds 100%? It's not at all."

As I said before, the national debt-to-GDP ratio is now around 50%.

In other words, it reads that it is okay for the national debt to double.

Regarding the level of national debt in Korea, different experts and different media companies have different analyzes.

It seems that opinions differ depending on the political inclinations of experts and the media.

The SBS Fact Check fact-check team had very different opinions, so we decided to make a judgment based on the report of an authoritative international organization.

I looked up the official documents of the IMF, and the IMF revealed the following in its annual consultation with the Korean government last year.

The IMF board praised South Korea's effective COVID-19 containment measures and comprehensive economic policy response, which, along with a healthy macroeconomy, has enabled the economy to withstand the epidemic shock relatively well and help minimize the risk of long-term economic harm. said it would be

The directors agreed that an expansionary fiscal policy should be maintained in the short term.

Executive Directors commended Korea's effective COVID-19 containment measures and comprehensive economic policy response, which, along with sound macroeconomic fundamentals, have allowed the economy to weather the pandemic shock comparatively well and should help minimize the risks of long-term economic scarring.

Directors agreed that fiscal policy should remain expansionary over the near term.

- IMF, Presentation of <IMF Executive Board Concludes 2021 Article IV Consultation with Republic of Korea>, March 2021.

First of all, the IMF is diagnosing Korea's debt level stably, as Candidate Jae-myung Lee said, and says it can spend more. 

If so, what about the argument that it is okay for the debt-to-equity ratio to nearly double than it is now?

This argument is in line with the controversy over what the 'appropriate level of debt' is.

Candidate Lee said, "The debt-to-GDP ratio of the United States is 127.7% and that of France is 133.7%, which is more than 110% in average countries, but only 45% in Korea. This number is not praised for being low."

This time, we looked for data from the European Central Bank (EBC).

Although the European case is the standard and historical data, it solves the general discussion regarding the appropriate debt ratio.

Even in Europe, there have always been controversies related to the 'appropriate level of debt'. As a result of collecting and organizing cases of national debt crises, EBC wrote that a low debt level does not mean that there is no fiscal crisis, and conversely, that a high level does not necessarily mean that a crisis will come.

Debt ratios do not provide a clear indication of how high a level of debt, theoretically or practically, is excessive in assessing sustainability, and further jeopardizes a country's fiscal sustainability. 

The use of the debt ratio for assessing sustainability in practice is impeded by the fact that neither theory nor practical experience give a clear indication of which debt level is too high and would thus threaten the fiscal sustainability of a country.

Looking at country experiences over the past 20 years, solvency crises occurred at very different levels of debt-to-GDP ratios.

- EBC, <OCCASIONAL PAPER SERIES> no.

56, 2007

In other words, it is impossible to pinpoint what the 'appropriate level of debt' is.

As there are many variables, it is read to mean that it is not a matter to simply compare the figures of other countries.

In particular, it is worth noting that the debt ratio between key currency countries and non-key currency countries cannot be simply compared, although it has been reported in various media.

So-called key currency countries, such as the US (dollar), Europe (euro), and Japan (yen), are countries where you can buy and sell things with your own money, and print more currency even if you run out of money.

Relatively liberal monetary policy.

Most of the debt-heavy developed countries that Lee exemplifies are reserve currency countries.

We took a look at the <Fiscal Confidence Enhancement Report> released by the IMF in October last year.

The report analyzes the debt levels of the G20 countries and 34 major European countries.

Among the 34 major countries listed in the report, countries with debt-to-GDP ratios exceeding 100% of non-key currency countries were only Greece, Singapore, and Canada.

In the end, it seems that Lee needs to provide a concrete rationale for why it is okay for the national debt to double as a percentage of GDP.

Let's take a look at the arguments of Candidate Yun Seok-yeol, the People's Power.

Candidate Yoon is keeping an eye on the country's debt growth rate.

Candidate Yoon wrote on his SNS last month, "There is a growing concern about the rapidly increasing national debt." 

Alternatives were also suggested.

Candidate Yoon said, "Within one year of the new government's inauguration, we will prepare responsible fiscal rules to manage national debt." added.

The evaluation of this is also different for each expert and each media company.

As with the validation of this candidate's claim, it was based on the official documents of the IMF.

He looked at the level of debt growth in the IMF's Fiscal Confidence Enhancement Report.

After five years, Korea's expected debt-to-GDP ratio is predicted to be 66.7%.

In fact, the team analyzed the growth rate as a percentage of GDP of 34 major countries based on the data of this report.

The figure was 15.4%, which was overwhelming compared to other countries.

For reference, the IMF has a higher debt ratio because it includes not only the government but also non-profit public institutions.

The International Monetary Fund (IMF) analyzed that the world's fiscal soundness is gradually improving, but only points to Korea as a case in which this is not the case.

Favorable interest rates conditions, and economic growth, together with projected fiscal adjustments (including a decline in COVID-19-related spending), are projected to slightly reduce the government debt-to-GDP ratio in developed countries to around 120% in 2026.

However, the debt ratio is expected to remain largely stable, as in the UK, or continue to rise, as in Korea.

Favorable interest rates and economic growth, along with projected fiscal adjustments (including a decline in COVID-19–related spending), imply that the ratio of gross government debt to GDP for advanced economies is expected to decline marginally to about 120 percent in 2026. However, in some countries the debt ratio is expected to remain broadly stable (United Kingdom) or continue rising (Republic of Korea).

- IMF, <Financial Confidence Enhancement Report>, October 2021

Based on official IMF data, Candidate Yoon's claim is true.

This is also the reason why the argument continues to be made that we should focus on the growth rate rather than the size of the debt itself.

By the way, Candidate Yoon promised to raise an aggressive supplementary budget worth 50 trillion won within 100 days of taking office.

Even in simple calculations, 50 trillion won is close to 5% of the total national debt.

Candidate Yoon also stated in the last debate that the budget for the election promises to be around 250 to 260 trillion won, but there was no clear explanation as to how this could be made through spending restructuring. 

It is also true that in order to achieve both 'debt reduction' and 'financial expansion' at the same time, there is no alternative that can be associated with anything other than a tax increase.

There is a consensus in European countries that they fill their finances through tax increases when their financial situation deteriorates, but it is difficult for us to talk about tax increases carelessly.

Especially during election season.

Candidate Yoon is also drawing a line with tax increases.

Candidate Yoon emphasized "dynamic growth, warm welfare, and fairness" when asked about the direction of the so-called 'Y-nomics' (Yoon Seok-yeol's Y + economics).

Regarding the national debt, he said, "Now we have reached the limit." "Even if there is an appropriation restructuring and issuance of government bonds, I will make sure to pay it back when growth recovers in the future."

As for the tax, he said, "I won't increase it."

- Korean Economy, <Yoon Seok-Yeol "The national debt is now at its limit... The increase in the aristocratic union problem is the result of the government taking the side">, on the 24th of last month.

Candidate Yoon talked about restructuring the appropriation and setting up fiscal rules, but those will be important.

It seems necessary to present to the public a specific method of how to catch the two rabbits of debt reduction and fiscal expansion.

The SBS Facts team is aiming for fact-checking that goes beyond simply determining facts and lies, and unraveling the various layers of the world we live in.

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