The country’s underground economy involving seems to be expanding, despite the government’s efforts to keep it in check, according to data released by the central bank on Wednesday.
The collection rate for the 50,000 won bill hit a record low last year at 48.6 percent, down more than 10 percent from 2012, the figures showed.
Collection rates indicate the volume of bills the BOK has gotten back in comparison to the amount of currency it issued during a set period. The rate for the 50,000 won bill is often used as an indicator of the size of the underground economy, as a low number means money isn’t flowing, and that the bills are being used for illegitimate purposes, such as shady financial transactions or tax evasion.
It can also mean that people are inclined to hold onto their cash, instead of spending it or putting in the bank.
The return rate of 10,000 won bank notes also declined by 12 percent, while that of 5,000 won saw a 7.8 percent drop on-year in 2013.
There is currently no set way to measure the size of Korea’s underground economy, but estimates by several private institutions such as Hyundai Economic Research Institute and LG Economic Research Institute estimated it was worth some 230 trillion won to 360 trillion won ($212.9 billion to $313.4 billion), accounting for more than 20 percent of the country’s annual gross domestic product.
That means if half of the illicit outflows were brought to light, there would be enough money to cover the incumbent government’s welfare pledges, which call for a budget of up to 135 trillion won.
President Park pledged earlier her administration would boost welfare spending ― without tax hikes ― and would secure funds by regulating the shadow economy instead.
Lawmakers put the blame on the government.
“It appears there are some side effects to specific government policies,” Rep. Seol Hoon of the Democratic Party, who released the data compiled by the BOK, said in a statement.
He was referring to the stricter tax laws, and also the introduction of the 50,000 won banknote in 2009, which he saw promoted the trend for passing cash under the table.
The government initially introduced the 50,000 won note in 2009 to reduce spending on issuing 100,000 won checks and to spur the sagging economy.
Analysts, meanwhile, were cautious about linking the collection rate with the underground economy.
“It’s too early to judge the impact of the figure,” said Kim Min-jung, a research fellow at Hyundai Research Institute.
“It’s also too early to say whether the government’s policy (to shed light on the shadow economy) has failed or succeeded,” she said.
By Oh Kyu-wook (firstname.lastname@example.org)