The Election Bill Has Arrived. Can You Afford It?

The local elections and the National Assembly by-elections are over. With the opposition party winning the Seoul mayoral race, often called a microcosm of South Korea, the ruling party received a painful result. For the conservative camp, which had been battered, the victories of Oh Se-hoon and Han Dong-hoon laid a stepping stone toward a break with martial law, even if not a complete one. The conservatives are likely to be reorganized around these figures. The ruling party, whose seats fell by four from before, must have confirmed the warning from public sentiment.

The bills that arrived after the election are not just one or two. First, there is the bill for trust in institutions. The conduct of the National Election Commission, which provoked public anger, must be thoroughly examined. Even if a significant portion of voters cast early ballots, can the reason for setting the lower limit on printing election-day ballots at a precarious 50% of all voters really be merely concern over loss, theft, and leakage of ballots? It is hard to accept.

The circumstances under which ballot shortages erupted concentrated in certain regions must also be thoroughly investigated. It must be examined whether this is a problem of incompetence, a structural problem, or a flaw in the system's design. If it is glossed over carelessly, public suspicion is bound to expand naturally. The political world must not lightly dismiss the fact that the very reason for the existence of the National Election Commission, which has come undone, is being questioned.

The economic bill, where alarm bells are already ringing loudly, is a mountain. The won-dollar exchange rate is threatening the 1,560 won per dollar mark, the highest in 17 years since the global financial crisis, and the KOSPI is being shaken sharply along with it. In the property market, price instability and a jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) shortage are appearing simultaneously, and signs of spreading strikes at large companies, justified by N% performance bonuses, are also serious.

The problem is that many of these adverse factors are connected to policy challenges that were deferred or ignored during the election campaign. Take the exchange rate issue right now. The cause of the won's weakness cannot all be attributed to government policy, but it is hard to deny that the expansionary fiscal stance is a cause of high exchange rate pressure. In fact, President Lee Jae-myung remarked at a May cabinet meeting that "fiscal austerity theory is populism." It means one should not be conscious only of national debt, but he cannot be free from criticism that he deliberately turns a blind eye to the side effects arising from releasing money.

A high exchange rate leads to a surge in import prices, which transfers to consumer prices. The first to groan from rising food and energy prices are ordinary citizens. The self-employed and small and medium-sized enterprises are also bound to take a direct hit from shrinking consumption. As such, in a phase where both monetary and fiscal policy are expanding simultaneously, more careful consideration must be given to how liquidity will affect asset markets and prices. Even if liquidity expands, if prices rise faster, the perceived effect will be limited.

The property issue is also a pressing matter. The government's position is to rein in housing prices through tax reform, but price stabilization without expanding supply has its limits. In particular, the result of driving out multi-home owners was a sharp drop in rental supply. This is a risk factor that ends in a reduction in jeonse supply and an acceleration of the shift to monthly rent, increasing the housing cost burden on ordinary citizens.

Moreover, policy directions such as punitive taxation on multi-home owners and the reduction of the special long-term holding deduction will soon be put to the test. Those who sold their homes will watch the tax reform plan, and those who hold homes will weigh the possibility of additional tax burdens. The room for policy maneuver has narrowed, but market expectations and anxiety have grown even more.

An overheated stock market is a concern of yet another dimension. With the KOSPI rising steeply in the short term on a semiconductor super-boom, the risk of losses for retail investors could grow in a phase of rate hikes. The government has thus far emphasized productive finance and pushed to expand the role of capital markets.

However, if the stock market enters a correction phase, there are few policy tools to absorb the market shock. Even the National Pension Service has nearly filled its domestic stock allocation to the limit. It is hard to expect it to play a market buffer role as in the past. There is a need to ease various regulations on companies, but as seen in the controversy over the Yellow Envelope Act, the government and the ruling party are instead held back by the very policies they have pushed.

If politics covered reality before the election, reality covers politics after the election. The government must examine the public sentiment revealed in the election and respond more flexibly. The market and the public will now begin to grade the government. And that evaluation can only be rendered not by the intent of policy but by its results.