President Lee Jae-myung has signaled the possibility of drawing up a supplementary budget to secure graphics processing units (GPUs). At the "Strategy Meeting for Fostering Future New-Security Innovation Companies" on the 26th, Lee said, "Isn't GPU procurement too slow?" and added, "I'm not sure whether we'll do a supplementary budget soon, but I think we need to supplement it." At a recent Cabinet meeting, Lee also mentioned the need for a supplementary budget to ease polarization, saying, "Don't we lack the funds to add income support measures for ordinary people?" The presidential office said "nothing has been decided," but this may be a way of "stoking the fire" for a second supplementary budget, following the 26.2 trillion won "war supplementary budget" in April this year. The Democratic Party of Korea also lent weight to the supplementary budget, saying, "Nothing is more welcome than a timely rain."
Securing high-performance GPUs is essential to foster the artificial intelligence (AI) industry. It is also time for the government to play a role in easing the polarization caused by the concentration in semiconductors. However, there is a need to guard against this solution culminating in excessive fiscal expansion. A one-off supplementary budget cannot build AI competitiveness or resolve polarization. On the contrary, with consumer prices soaring into the 3 percent range and the won-dollar exchange rate running high in the 1,500 won range, a hasty supplementary budget risks stimulating prices and the exchange rate, ultimately worsening the livelihood economy. Moreover, the possibility cannot be ruled out that policy discord with the Bank of Korea, which has signaled a base rate hike to curb inflation, could trigger market confusion. This is likely why Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol and presidential policy chief Kim Yong-beom earlier drew a line against fiscal expansion through a second supplementary budget.
If repeated supplementary budgets release liquidity and raise upward pressure on prices and the exchange rate, the BOK will have no choice but to raise rates further. This means the Korean economy will find it harder to escape the vicious cycle of the "three highs": high prices, high exchange rate, and high interest rates. If policy discord between monetary and fiscal policy damages market confidence, the fallout will become uncontrollable. In 2022, didn't the United Kingdom's Liz Truss government trigger a market "shock" of surging government bond yields and a plunging pound after announcing massive fiscal easing measures amid the central bank's rate hikes? Now is the time to refrain from fiscal expansion, which may bring more losses than gains, and to concentrate policy capacity on resolving the three highs that burden the economy.
