Finance minister nominee Lee says active fiscal role needed to lift growth, ease inequality

Lee Hyung-il, nominee for deputy prime minister and minister of economy and finance, said the government must take an active fiscal role to address domestic and external uncertainties as well as structural challenges facing the Korean economy. He added that fiscal sustainability must also be secured through performance-oriented spending management, given the rapid rise in national debt and mandatory expenditures.

In written answers submitted to the National Assembly ahead of his confirmation hearing, Lee said, "While fiscal sustainability must be kept in mind, an active fiscal role is needed at this juncture to respond to domestic and external uncertainties and the structural problems of our economy."

He acknowledged that excessive growth in national debt and mandatory spending could constrain fiscal capacity and weigh negatively on potential growth and the burden on future generations. He noted, however, that many countries had suspended or relaxed fiscal rules following COVID-19, and said active fiscal policy and fiscal soundness could be pursued in tandem.

Specifically, he outlined a plan to concentrate fiscal resources in areas capable of expanding supply capacity and delivering results, creating a virtuous cycle between growth and public finances. On the Lee Jae Myung administration's fiscal management, he said this year's and next year's budgets "were drawn up actively, with a focus on addressing structural issues such as boosting potential growth and easing polarization," adding that "fiscal policy should be judged by results, not by the scale of spending."

Lee also referenced his experience as director general of economic policy and vice minister at the Ministry of Economy and Finance during the COVID-19 outbreak, saying fiscal and financial support at the time helped sustain household incomes and small business operations while easing a contraction in consumption and financial market instability. He noted, however, that financial support targeting small and medium-sized enterprises and small business owners had also contributed to a rapid buildup of debt.

Lee said he would work to activate debt restructuring to ease the burden on vulnerable borrowers during periods of rising interest rates and expand support for small and medium-sized enterprises and small business owners.

He identified reversing the decline in potential growth and easing polarization as his top priorities upon taking office. Given that polarization stems from a complex interplay of economic and social factors, he said he would pursue structural reforms across society as a whole, not just in the economy and industry.

On government funding for public pensions, Lee said such support could contribute to stable system operations, reduced burdens on contributors and protection of vulnerable groups. He cautioned, however, that financing through deficit bond issuance would increase national debt, and that fiscal conditions and spending priorities must be weighed comprehensively.

He described the petroleum price cap as a "safety valve" against surging fuel costs and sharp price increases for the public, but said he would consider lifting it immediately once uncertainty in the Middle East eases and both international crude prices and domestic petroleum product prices stabilize.

Lee projected that the low birth rate, aging population and shrinking working-age population would exert downward pressure on growth, employment, productivity and public finances. He said the AI transition represents both a challenge and an opportunity for the Korean economy, and pledged to use it as a springboard for economic advancement.

Lee praised his predecessor, Deputy Prime Minister Koo Yun-cheol, for working to lay the groundwork for economic recovery and normalization, a rebound in potential growth through the AI transition, and overcoming polarization. Lee's confirmation hearing before the National Assembly is scheduled for Tuesday.