The government last week disclosed plans to finance a special fund worth 20 trillion won ($16.8 billion) over the next five years to support the South Korean version of the “New Deal” announced by President Moon Jae-in in July.

The fund will consist of 3 trillion won in government investment, 4 trillion won in investments from state-run financial institutions and 13 trillion won from private financial firms and individual investors.

It is part of a massive financing scheme worth 190 trillion won for the ambitious initiative designed to transform the country’s economy through a set of digital infrastructure and environmentally friendly projects to overcome the coronavirus crisis and prepare for the post-pandemic era.

In a meeting with heads of state-run and private financial institutions Thursday, Moon said the envisioned fund would enable ordinary people to join the government-driven initiative and gain “more stable profits” because of the tax benefits and shared risks.

He added that the fund could be expected to help funnel excess liquidity from the real estate market into more productive sectors.

Government officials and ruling party lawmakers have made a strenuous pitch for the New Deal fund, which they say would offer opportunities to make safe, profitable investments in innovative sectors that could bolster the sustainable growth of the economy.

In a debate held in July to discuss ways to enhance investors’ interest in the envisioned fund, ruling party legislators said measures would be worked out to ensure that the fund would achieve at least a 3 percent rate of return on investment. A brochure distributed during the session by an intraparty committee set up to support the New Deal initiative suggested the government would guarantee the principal and interest on all money invested in the planned fund.

The government has remained relatively cautious about offering formal guarantees of a certain level of return on investment or compensation for losses.

But in a press briefing before last week’s meeting, Financial Services Commission Chairman Eun Sung-soo said the government would “virtually” guarantee that private investors would recover at least 35 percent of their losses through fiscal investment in the planned fund.

Both the ruling party’s suggestions and the top financial regulator’s remarks go against the market principle that investors should bear the risks of investment. The Capital Markets Act prohibits financial products from guaranteeing profits or offering compensation for losses.

Creating a fund whose losses are covered by taxpayers’ money might be seen as yet another populist move aimed at forging voter sentiment in favor of the ruling party in the runup to the next presidential election in 2022.

There could also be criticism that the government is trying to deflect public concerns about ballooning national debt by creating an ill-designed fund instead of issuing state bonds.

The government-initiated fund could ultimately hurt the autonomy and creativity of private investors, possibly even diverting their money from other productive sectors and promising startups.

Finance Minister Hong Nam-ki said last week that the envisioned fund could be expected to have much higher yields than government bonds. But if New Deal projects are set to be so lucrative, there is little need for the government-driven fund.

The best way to revive the economy and nurture innovative industries is to carry out sweeping deregulation to improve the business environment, thus stimulating corporate activity and private investment.

Lifting regulatory restrictions is required to ensure the successful implementation of New Deal projects and make them more profitable.

Since Moon took office in 2017, his administration has imposed a string of regulations on companies, which have barred local entrepreneurs from entering new business areas, leaving them to lag behind foreign firms in innovative industries that are set to lead the post-coronavirus recovery.

In recent months, Moon has repeatedly called for drastic deregulation, but has done little to turn his rhetoric into practice.

The ruling Democratic Party of Korea, which has an overwhelming parliamentary majority, is pushing to enact a horde of bills to slap additional regulations on business activity.

During last week’s meeting, Moon vowed “bold” regulatory reform to facilitate the implementation of the New Deal initiative. This time, he should prove the sincerity of his pledge by going all out to eliminate regulatory hurdles to a transformed economy that is fit for the post-pandemic era.