When evaluating decisions made by public officials, there are times when the process followed, or style presented, is more important than the final outcome or substance. A case in point was the Bank of Korea’s cut in the benchmark interest rate Thursday.
Announcing a 0.25-percentage point cut of the key rate to 2.5 percent, BOK Governor Kim Choong-soo cited two reasons: joining the worldwide trend of monetary easing, and helping to maximize the stimulus effect of the government’s extra spending. Few could take issue with this reasoning ― except that the top central banker said almost oppositely just a week ago.
It was also none other than Governor Kim who threw a casting vote to freeze the policy rate a month ago when the economic situations at home and abroad were little different from now.
This gives the impression that Kim has changed his mind and compromised his principles, yielding to persistent pressure from the government, which described it as a welcome, if belated, move. One is even left to wonder whether the top policymaker’s initial recalcitrance reflected his principles ― views on current economic situations or on the central bank’s independence from government ― or just an attempt to compete with or oppose the new administration’s economic team.
These doubts are due to the abrupt changes of stance Governor Kim has shown throughout his tenure. When former President Lee Myung-bak appointed his ex-economic aide to head the central bank three years ago, Kim made it clear that the BOK is part of the government and the final authority on monetary decision-making also rests with the chief executive, causing loud sighs about BOK’s subordination to government.
So when Kim stressed the need for the central bank’s independence a few weeks ago, it astonished none other than BOK officials most.
It does not even take financial experts to know that what is most important in monetary policies are not the temporary moves of the money rate but the predictability and plausibility of such decisions so as to give various economic players trust in policymakers. So far at least, Kim’s central bank has failed in this regard, by making decisions belatedly or moving in directions opposite to widespread expectations, catching, more often than not, financial and industrial firms off guard. In short, Governor Kim failed to show correctness, and as a consequence, consistency, too.
This is not to say the government can attempt to sway the central bank, as the Park Geun-hye administration does. President Park was right to guarantee the legal term in office of the BOK governor named by her predecessor, but she should also have given perfect autonomy to the organ whose foremost concern is to combat inflation, not economic stimulus, regardless of who sits at its top.
Governor Kim is determined to remain in office until his term expires next March. We hope he will show resolve and more backbone than he has over the past three years. Now that Kim has added one more stimulus weapon to extra budget and property market deregulation, it is the turn of Park’s economic team to jumpstart the economy, although that is also doubtful, given what they have done in the past half year or so.
What all this shows is a crucial need for chief executives to pick officials ― at least economic policymakers ― not according to personal preference or ideological inclinations, but by, and only by, whether they are competent to do a job. Nothing less than Korea’s economic future is at stake.