[Editorial] IMF urges 'precise fiscal policy,' Korean politics mired in populism

The International Monetary Fund (IMF) has urged countries to manage their public finances with greater precision in the wake of the Middle East war. It warned that, as governments around the world face the risk of structurally worsening fiscal positions, support for vulnerable groups must be tightly targeted and limited in scope and duration.
The IMF cited several reasons for the deterioration of national finances: financial market risks linked to Artificial Intelligence (AI), inefficient resource allocation caused by protectionism, and spending pressures stemming from the Middle East war. With rapid technological change and a shifting global trade order now compounded by the shock of war, fiscal policy is being asked to do more. As a result, public finances have come under mounting strain.
Despite these warnings, the campaign promises emerging in Korean politics ahead of the June local elections fly in the face of the IMF’s concerns. One ruling-party candidate for mayor has pledged to pay 200,000 won per person in compensation for damage from high oil prices. This would be on top of the central government’s own payments to the bottom 70 percent of households by income. An opposition-party candidate for provincial governor has promised to give 100,000 won in living support to every resident of the province, regardless of income level. Each of these programs would cost hundreds of billions of won. Candidates for lower-level offices such as city, county, and district heads are likewise unveiling pledges to distribute cash without regard to income.
The same is true of preliminary candidates for superintendent of education in the local elections. One progressive-leaning candidate has proposed depositing 1 million won into an investment fund account opened by each first-year middle school student, to be returned with any earnings when the student graduates from high school. A conservative superintendent seeking a second term has already provided 300,000 won per student last year to all third-year high school students in the province to cover certification exam fees. These are byproducts of the fact that Local Education Subsidy Grants, which automatically receive 20.79 percent of national tax revenues, are piling up even as the number of students declines.
Candidates in the local elections, regardless of party, appear to see cash handout pledges as the easiest way to win votes. The problem is that the local governments they seek to lead have very low fiscal self-reliance. As of last year, the fiscal self-reliance ratio of 14 provinces and metropolitan cities—excluding Seoul, Gyeonggi Province, and Sejong Special Self-Governing City—was below 50 percent. More than 100 basic-level local governments are now in a situation where they can barely cover civil servants’ salaries with their own tax revenues.
Given these fiscal conditions, local governments’ cash support programs are highly likely to be structured by topping up central government subsidies with a small portion of local funds. More fundamentally, South Korea’s national debt increased by 129 trillion won last year alone compared with the previous year, the largest jump since the IMF Crisis of 1997. The national debt-to-GDP ratio rose by 3 percentage points in a single year to reach 49 percent. It is a structure in which it will be difficult to keep "robbing Peter to pay Paul" through ongoing cash handouts.
Of course, not every cash-based pledge can be dismissed outright as populism. As the IMF recommends, if support is carefully targeted at clearly defined vulnerable groups, it can help revive depressed consumption. Ultimately, what matters is whether the pledges are realistic and responsible. Candidates should not simply tout the size of the benefits; they must also present concrete plans for how they will finance them. Voters, for their part, should look beyond the immediate gains and ask where the money will come from and what burdens it will create down the road. Only when fiscal promises are subjected to cool-headed scrutiny can citizens properly choose the future leaders of their regions.