Kang Hoon-sik: "Issuing government bonds is inevitable to stimulate the economy"

Government reaffirms expansionary fiscal stance

"The economy cannot be revived without fiscal spending

Cautious approach considering national debt ratio"

Draws a line at formulating a third supplementary budget

Calls for self-rescue measures in 'crisis' petrochemical industry

Presidential Chief of Staff Kang Hoon-sik stated on the 19th, "We cannot revive the economy with fiscal policy alone, but at the same time, we are not in a position to do so without fiscal spending," emphasizing several times the need for substantial fiscal injection to boost the economy. He also repeatedly underscored that issuing deficit government bonds is, in fact, unavoidable in this process. Regarding the restructuring of the domestic petrochemical industry, he announced that government support measures had been prepared on the condition that companies and major shareholders make their own efforts for self-rescue. While government restructuring support programs are in place, he made it clear that internal efforts, such as reducing corporate production capacity, must come first.

◇On the inevitability of issuing government bonds

At a meeting with reporters at the presidential office in Yongsan, Chief of Staff Kang said, "We should revive the economy through fiscal spending, and in reality, it is already determined whether to issue government bonds," adding, "However, we are approaching the matter carefully, taking into account the country's debt ratio." Regarding the possibility of a third supplementary budget, Chief of Staff Kang dismissed it, saying, "There has been no such discussion at all."

The national debt ratio, a number that expresses the ratio of national debt to the country's Gross Domestic Product (GDP), is an indicator of fiscal soundness. This year, Korea's national debt ratio to GDP is expected to reach 48%. While this is lower than that of major advanced countries with reserve currencies such as the United States and Japan, the growth rate is noteworthy. President Lee Jae-myung, at a cabinet meeting on the 13th, likened the nation's finances to "seeds" and suggested, "If you can harvest a sack of rice in the fall, it's only natural to borrow seeds to sow," implying the intention to raise funds by issuing government bonds.

Chief of Staff Kang said, "Nobody thinks the Korean economy will improve without fiscal spending," and added, "But since fiscal policy alone will not suffice, we are considering long-term measures for the economy." He went on, "(Fiscal spending to boost the economy) is not always the only answer, but it cannot be left out altogether," and also said, "If we could stimulate the economy without taking on debt, we would do so."

◇"Petrochemical industry, cut production volume"

Chief of Staff Kang also said that measures to restructure the petrochemical industry, which has been hit by low-priced competition from China, are ready. He said, "With companies and major shareholders making strong self-rescue efforts as a precondition, we have prepared a plan to mobilize financial support and all available government support tools, reduce excess capacity, and encourage a shift to the production of high-value, eco-friendly products so that the petrochemical industry can take off again."

Chief Kang especially noted, "Petrochemical companies themselves know they are in a 'chicken game.' They know production volume must be reduced," and added, "Yet they are holding on, telling each other, 'You go down first.'" He continued, "The industry and the government both know that our petrochemical sector could collapse," and said, "That's why we've asked companies to proactively make efforts for self-rescue, and I understand that they have agreed."

Regarding follow-up real estate measures after the '6.27 Measures,' Chief of Staff Kang said, "We plan to announce supply measures soon so the real estate market can be managed stably." Regarding measures to eradicate industrial accidents, he said that the Ministry of Trade, Industry and Energy and the Ministry of SMEs and Startups, among other relevant industrial ministries, will jointly announce policy reforms. Chief Kang said, "President Lee has said, 'If our government can save even 100 lives through our efforts, it would be truly worthwhile,'" underscoring the President's strong determination to prevent industrial accident fatalities.

Jae-young Han, Reporter jyhan@hankyung.com