The International Monetary Fund (IMF) has advised countries benefiting from the technology sector boom to exercise caution in their spending. In its October World Economic Outlook, the IMF warned against increasing expenditures during prosperous times and recommended that unexpected revenues be saved, used to bolster fiscal capacity, or invested in high-return projects. While South Korea was not specifically mentioned, the IMF's forecast of a 3.3% growth rate for the country this year, driven by strong semiconductor demand, underscores the importance of heeding this advice.
Domestically, the future response fund has become a contentious issue. The government plans to establish a fund worth 162.3 trillion won next year, allocating 45.4 trillion won to youth, growth drivers, local development, education, and talent cultivation. An additional 12.5 trillion won will be used to reduce new government bond issuance, while 104.4 trillion won is intended to remain as surplus funds. Although the plan does not call for immediate expenditure of the entire amount, the rationale for managing such a large fund separately must be clearly demonstrated.
The key concern is how long the increased tax revenue from the semiconductor boom will last. If projects requiring annual spending are initiated based on temporary revenues, the government may have to fill the gap with general funds or bonds once the boom ends. The government should disclose the basis for estimating additional revenues that exceed long-term trends, as well as projections for income and expenditures during economic downturns. More critical than the label of future investment is the timeline for project completion and plans for subsequent funding.
Alternatives to the fund should also be considered. A portion of the additional revenue could be prioritized for debt reduction, while investments in research and development, talent training, and infrastructure could be reflected in the general budget and medium-term fiscal plans. This approach would allow for long-term investment planning while still undergoing annual scrutiny by the National Assembly. The current national finance law aims to use a portion of surplus funds for debt repayment, and this intent should be preserved. If the same objectives can be achieved through existing budgets and funds, there is no need to increase administrative costs and duplicate projects associated with a separate fund.
If the fund is implemented, clear boundaries between reserve funds for fiscal stability and investment funds must be established. The government should not only separate financial and business accounts but also legally define the reserve ratio, withdrawal conditions, and annual spending limits. In addition to annual operational plan reviews, controls on mid-year changes should be stringent. Funds set aside for potential revenue declines should not be easily redirected for routine project expansions. Any significant increases in projects or transfers between accounts should require prior approval from the National Assembly.
Asset management must align with its intended purpose. The government states that it aims to achieve returns exceeding government bond interest rates with surplus funds. However, if the funds are intended for use during economic downturns, safety and liquidity should take precedence over yield. The government must be able to withstand declines in asset prices during periods of reduced tax revenue. The savings from additional debt reduction and the risks and costs of fund management should be compared and disclosed using the same criteria.
Project selection should undergo independent expert verification and conflict-of-interest prevention procedures, with the basis for selection, execution details, and outcomes regularly disclosed. Even if short-term returns are low, essential basic research and talent investment should be evaluated for their public value and long-term effects, with adjustments made if performance is lacking or if projects overlap with existing initiatives. A mechanism for periodic reassessment of the fund's viability and project continuity is also necessary.
The semiconductor boom presents an opportunity to prepare for the future. Capitalizing on this opportunity requires securing both fiscal resilience and the next growth drivers, even in times of economic downturn. Lawmakers should move past disputes over the fund's name and reach an agreement on how much to retain, where to allocate funds, and who will be accountable. To ensure that the benefits of the boom are passed on to future generations, transparent distribution and strict oversight must be in place.
* This article has been translated by AI.
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