“Balli-Balli” – fast, fast: while Germany is taking its time with the economic stimulus package, South Korea has already submitted the third supplementary budget. In order to support consumption, there are monetary gifts to the residents.
DThe German federal cabinet takes time to decide on the economic stimulus package to alleviate the economic damage caused by the corona. In Asia, one country is pushing ahead faster. In South Korea, the government presented the third supplementary budget on Wednesday to support the economy in the corona shock.
The plan provides for additional spending of 35.3 trillion won (25.9 billion euros). According to the ministry, the total effective amount of all corona aid in South Korea will rise to 270 trillion won (198 billion euros). This total also includes, among other things, loan commitments from state development banks that have no fiscal impact on the budget. But regardless of this, the government is increasing the aid that has already been decided. At 35.3 trillion won, the third supplementary budget is larger than the first two combined. It is also expected to offset expected tax losses of 11.4 trillion won. It is certain that the parliament, in which the government has a majority, will pass the supplementary budget.
The third supplementary budget in quick succession is not only a sign of the “Balli-Balli” culture widespread in South Korea, according to which everything always has to be done quickly. The government also knows that financial support, as in the current crisis, must come quickly in order for it to take effect. One example is the de facto debt-financed gift of money to the residents, with which the government wants to stimulate consumption.
Cash gifts paid out quickly
The corresponding supplementary budget was approved by Parliament on April 30, a Thursday. Just four days later, on Monday, hundreds of thousands of needy South Koreans with low incomes, some of whom live on welfare, received the money. Depending on the location, Koreans can receive 400,000 to 1,000,000 won (290 to 730 euros).
Payments to the rest of the population, who had to submit an application, began on May 13 and are now almost finished about two weeks later. Of the eligible 21.7 million households, 21.4 million have already received the money. 95 percent of the estimated 14.2 trillion won (10 billion euros) has already been paid out. It went so quickly because South Korea largely paid out the money via credit cards, which is quick and easy in the largely digitized financial system. In Japan, on the other hand, where parliament also decided to pay 100,000 yen (830 euros) to every resident at the end of April, many people are still waiting for their money, especially in the metropolitan areas of Tokyo and Osaka.
With the latest supplementary budget, the government is trying to reduce the economic contraction. A large part is provided as emergency loans for small and medium-sized businesses. The government also wants to spend more money to directly secure jobs, to develop a vaccination against Covid-19 and to boost consumption with vouchers. In order to encourage the population to quickly spend the money-consumption coupons that have already been paid out, South Korea is relying on means that are unusual for German standards. In a promotional video by the Ministry of the Interior, the South Korean comedian Kim Shin-young explains to the population, singing and dancing, where and until when the money should be spent.
Public debt is increasing significantly
After the South Korean economy had done quite well in an international comparison at the beginning of the year with a minus of 1.3 percent compared to the previous quarter, the global slowdown is pressing on the country, which is economically dependent on international trade like no other. In May exports were 24 percent lower than a year ago. The Treasury Department had just this week lowered its growth forecast for this year from 2.4 to 0.1 percent. Other institutions such as the International Monetary Fund expect economic output to shrink by around 1.2 percent. Just last week the Bank of Korea cut the key interest rate from 0.75 percent to the record low of 0.5 percent. It was the second rate cut since March.
Around two thirds of the new supplementary budget will be financed through new debt. The fiscal situation in the country is deteriorating significantly with the Corona aid. Government spending will increase by 16 percent this year. Originally, a large plus of 9 percent was planned. Compared to last year, the deficit will increase from minus 1.9 percent of gross domestic product to minus 5.8 percent. According to the Ministry of Finance, total national debt will rise from 37.1 percent to 43.5 percent of GDP.