SEOUL, January 02 (AJP) - South Korea on Friday formally split the Ministry of Economy and Finance into two separate ministries, a move the government says will strengthen fiscal discipline and policy accountability but that raises questions about coordination in economic crisis management.
The reorganization creates the Ministry of Planning and Budget and the Ministry of Finance and Economy, separating budget authority from macroeconomic, financial and tax policy. The two ministries officially launched at the Government Complex in Sejong, marking one of the most significant changes to South Korea’s economic governance in nearly two decades.
The Ministry of Finance and Economy began operations following a signboard ceremony at the former ministry’s main building, while the Ministry of Planning and Budget moved into Building 5, previously occupied by the Ministry of Oceans and Fisheries. The physical separation underscores the institutional overhaul, which divides budget and economic policy functions that had operated under one roof.
Under the new structure, the Ministry of Planning and Budget will be responsible for national fiscal management, including budget formulation, execution and performance evaluation. The Ministry of Finance and Economy will serve as the government’s economic “control tower,” overseeing macroeconomic management, financial and tax policy, and external economic affairs.
It is the first time since the Ministry of Economy and Finance was launched in 2008 that budget and economic policy functions have been separated, ending an 18-year combined system.
The government said the change was driven by concerns that concentrating budget, tax and economic policy in a single ministry had led to excessive power and reduced policy flexibility.
With large-scale fiscal spending becoming more routine, officials said an independent budget authority would help reinforce fiscal discipline, while a dedicated finance and economy ministry could respond more nimbly to economic cycles and focus on industrial and financial policy.
However, questions remain over whether the Ministry of Finance and Economy can function effectively as an economic control tower without direct budget authority. Critics warn that policy impact could be limited if growth strategies and crisis responses cannot be backed by swift budgetary action.
Policy coordination between the two agencies is also emerging as a key test.
Because fiscal policy plays a central role in economic stabilization, misalignment between budget planning and macroeconomic policy could weaken outcomes. Past periods of institutional separation were marked by coordination failures and disputes over responsibility, some observers say.
The Ministry of Planning and Budget faces immediate challenges from population aging, rising welfare spending and mounting calls for expansionary budgets to support a slowing economy, while being tasked with preserving fiscal soundness. Its effectiveness will likely depend on strengthening midterm fiscal planning and maintaining tighter control over spending demands from other ministries.
The Ministry of Finance and Economy is launching amid heightened global uncertainty, including shifting interest-rate trends, intensifying U.S.-China technology rivalry and ongoing supply-chain restructuring. It must balance inflation control with efforts to revive growth, while managing tax policy, financial-market stability and external economic negotiations without direct budget levers.
Analysts say the reorganization risks confusion and accountability gaps. But if clear roles and a permanent coordination mechanism are established, the split could enhance both fiscal discipline and economic responsiveness. The government has said it plans to limit policy friction through regular consultations and joint response systems.
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