[fn Plaza] Semiconductor 'Windfall' and the Trauma of Crisis

Park Hong-keun, the minister of the Ministry of Planning and Budget, spoke in a sharp, ringing voice. He sounded especially confident when he said next year's national tax revenue would far exceed the original forecast of 412 trillion won and set a record at "500 trillion won plus alpha (α)." That was the impression I had while watching him outline the direction of national fiscal management at the National Fiscal Strategy Meeting chaired by President Lee Jae Myung on the 13th, broadcast live on television. Where did the minister's composure come from? Was it the weight of being a four-term senior lawmaker and the first minister of the planning ministry?
The answer may be the impact of the "semiconductor windfall," which everyone knows and acknowledges. In the era of a sweeping shift driven by AI, the semiconductor supercycle is now in full swing. Operating profits at Samsung Electronics and SK hynix, the de facto dominant suppliers of high-bandwidth memory (HBM), which is essential for AI operations, are soaring. That is because semiconductor supply is failing to keep up with demand, creating shortages and pushing prices higher. In the second quarter of this year, Samsung Electronics earned 1 trillion won in operating profit every day. On the 10th, local time, SK hynix raised $26.5 billion, or about 40 trillion won, in the U.S. stock market. It was the largest fundraising by any foreign company listed in the U.S. and marked its debut on Nasdaq.
A surge in corporate profits leads to higher tax revenue. If more is collected in corporate tax and earned income tax, the budget authorities gain more room to expand spending. Some forecasts even say the additional tax revenue could easily exceed 100 trillion won. That is the backdrop to the government's confidence in drafting next year's budget at more than 800 trillion won, up over 10% from this year. The achievements of "Samsung Electronics and SK hynix" do not stop there. National wealth is expanding. They have driven the rise in the KOSPI and sharply increased the current account surplus. As of May this year, the current account surplus stood at $141.28 billion. It surpassed last year's annual surplus of $99.97 billion in just five months. It is an all-time performance.
"Hosa dama" is a saying that means bad luck can spoil a celebration, but it also carries the lesson that the better things go, the more carefully one should look for signs that could ruin them. In economic terms, it is a warning to stay alert for any signs of crisis.
There are unsettling signs. The won has been falling sharply. The won–dollar exchange rate has struggled to settle below the 1,500-won level. That is hard to reconcile with the current account surplus. Samsung Electronics' performance is among the best in the world. It is earning that much in dollars through semiconductor exports. Looking only at the exchange rate, it is not much different from the 2009 financial crisis. Is this only a currency issue, or has our economic resilience weakened? The weakness of Southeast Asian currencies is also puzzling. Indonesia is especially severe. The cause is often cited as worsening public finances in the Indonesian government. Thailand, the Philippines, and Vietnam are also facing fiscal deterioration and weaker currencies. The simultaneous weakness of Asian currencies revives the trauma of the 1997 IMF Crisis. That crisis began in Thailand, spread across countries, and eventually hit Korea as well. Back then, the exchange rate was fixed. That is different from today's floating exchange rate system, which absorbs volatility much better. Foreign exchange reserves are also much larger now. The situation is clearly different, but there are similarities too.
We must remain vigilant. We need to use the semiconductor effect to break free from crisis trauma. The huge amount of money flowing in through additional tax revenue should become a driving force for transforming the existing economic system. It is appropriate for the government to turn the extra tax revenue into a Future Response Fund rather than treating it as a one-off windfall, and to focus investment on the future, young people, regional areas, and education. The plan to support three major mega-projects, including semiconductors, is also only natural.
Still, the right policy direction does not guarantee success. There is a reason the saying "the devil is in the details" is quoted so often. The Future Response Fund will be created and established under relevant laws, but there are concerns that it could become a slush fund for the government. Unlike the budget, a fund is subject to relatively weaker parliamentary review and oversight. It can tempt those in power to expand spending according to political interests or partisan logic.
Past cases bear this out. When unexpected tax revenue poured in, such things were common. During the Roh Tae-woo administration's Three-Lows Boom, the government expanded spending in response to demands for higher wages and welfare in order to bolster its legitimacy. During the so-called first semiconductor boom in 1994-1995, the Kim Young-sam administration focused on the achievement of joining the OECD rather than on future investment, which led to a crisis. The Moon Jae-in administration, which also benefited from a strong semiconductor cycle, failed to seize the opportunity as well.
If a semiconductor windfall is combined with political logic, bold innovation and investment will be left behind. The extra tax revenue from semiconductors could become a poison that triggers a crisis rather than a savior. A remark by former Minister of Economy and Finance Kang Man-soo, who served as vice minister of finance and economy during the IMF Crisis, still rings true: "In the mid-1990s, everyone was blinded by the semiconductor boom and left a weakening economic structure unattended. That was the cause of the IMF Crisis."
mirror@fnnews.com Kim Gyuseong Reporter