Finance ministry vows to keep BOK in check

The Korea Times

The Korea Times

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Finance ministry vows to keep BOK in check

Posted : 2010-10-19 17:02

Updated : 2010-10-19 17:02

Yoon Jeung-hyun would continue to send a representative to the Monetary Policy Committee meeting at the Bank of Korea.

Yoon Jeung-hyun
Minister of Strategy and Finance

By Cho Jin-seo

Minister of Strategy and Finance Yoon Jeung-hyun said Wednesday that he would continue to send a representative to the Monetary Policy Committee meeting at the Bank of Korea (BOK), stressing the need for close policy coordination between the two institutions.

Yoon denied any direct meddling by the ministry, but said it was “beneficial and desirable” for the two institutions to exchange opinions.

He also refused to take advice from the International Monetary Fund (IMF), which urged him to stop sending a delegate to the BOK meeting

“The IMF advice is made from the IMF’s perspective. We don’t think that it has 100-percent legitimacy,” Yoon said on the final day of a National Assembly hearing at the ministry.

“It is beneficial and desirable for the government to participate (in the BOK committee meeting) and exchange opinions. Whether to follow the advice or not is up to the BOK committee members. This kind of fair and right communication process can help our society develop further,” he said.

The central bank’s independence has been a controversial issue in Korea this year. In January, the finance ministry began to send one of its vice ministers to the BOK monthly committee meeting as an “observer” so that he could see who votes for what policy decision — a rarely used right in the bank’s recent history. Probably as a result of this, the interest rate has been raised only once by a quarter of a percentage point throughout the whole year from the record-low of 2.0 percent.

In early September, the IMF made a rare criticism of the ministry’s practice and urged the BOK to raise the interest rate further.

People in the financial industry, especially those who trade bonds, are complaining that the BOK’s policy rate should have been raised further. Many of them say that verbal “signals” from Kim Choong-soo, the BOK’s governor, are confusing and they find it difficult to see consistency. The consensus now is that the traders would prefer looking at Yoon’s mouth instead of Kim’s in predicting future monetary policy.

Representatives from the National Assembly echoed this view on Wednesday. Lee Yong-sup of the Democratic Party was also sarcastic. “Minister Yoon is a happy man, because BOK Governor Kim is so considerate of the ministry’s business.”

Yoon said he respects Kim. “He is not the kind of man who would succumb to pressure from Yoon Jeung-hyun, though I’m not sure whether there is pressure on him from others,” he said, smiling.

On currency policy, Yoon reiterated the ministry’s official position that it does not have a specific policy goal on the exchange rate.

Lawmakers helped Yoon in defending Korea’s position in the “currency war.” Some Western politicians and media have blamed Korea for artificially depreciating its currency so that it gains competitiveness in exports. Rep. Lee of the Democratic Party refuted this Western view, pointing out that the Korean won is actually almost 20 percent more expensive than its pre-financial crisis level.

Yoon also expressed discomfort in using the term “currency war” and instead opted for “currency debate.” As a host of the G20 ministers’ meeting this Saturday, he said that the currency issue will be dealt with at the meeting as part of broader policy coordination, known as the “framework.”

Unlike his Japanese counterpart, Yoon showed prudence in addressing the global foreign exchange issue and repeatedly said “pass” on questions regarding other countries’ currency policies. Last week, Japan’s Finance Minister Yoshihiko Noda and Prime Minister Naoto Kan accused Korea in public of allegedly intervening in the currency market.

This made Yoon and other Korean officials at the G20 team feel betrayed. Kan was Yoon’s partner until June when he was promoted from finance minister to prime minister.

On the issue of the large inflow of money from overseas into Korean stock and bond markets, Yoon said that the ministry is considering a variety of options but it was too early to talk about them.

cjs@koreatimes.co.kr