Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Government intervention raises concerns about market freedom in Korea
Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok, right, talks with Bank of Korea (BOK) Governor Rhee Chang-yong during their meeting on macroeconomic issues at the BOK headquarters in central Seoul, Feb. 26. Joint Press Corps
By Yi Whan-woo
There are growing concerns that the government is overstepping its boundaries by intervening in financial, business, and economic matters that should be managed independently by the private sector or the central bank.
Critics argue that such intervention undermines private sector-driven growth and the principles of a free market economy promoted by the conservative Yoon Suk Yeol administration.
The latest controversy emerged after the presidential office expressed regret following the Bank of Korea’s (BOK) decision on Thursday to keep the benchmark interest rate unchanged at 3.5 percent for the 13th consecutive time.
“The presidential office's response to the rate pause could be seen as exerting pressure on the BOK to align with government policy and avoid dissent in the future,” Hanyang University economics professor Ha Joon-kyung said.
The professor noted that the Yoon administration has been eager to revitalize weakening private spending, which was a major factor in the Korean economy shrinking for the first time in 18 months during the second quarter.
On the other hand, the BOK’s decision to maintain the rate is expected to limit private spending. The 3.5 percent policy rate is the highest since December 2008, increasing the financial burden on individuals with loans.
The BOK has two rate-setting meetings remaining this year, each on Oct. 11 and Nov. 28.
Asking not to be named, a civic group activist on economic justice-related issues said, “The BOK should continue to make it clear that it independently makes decisions on rate-setting policy.”
“The market’s trust in the central bank could be significantly weakened if it appears to be complying with the government’s interest against its will,” the activist said.
The activist argued that the Yoon administration has been "self-contradictory" regarding its market-driven growth vision, particularly in relation to commercial banks' policies on deposit and loan rates, as well as CEO appointments at financial holding companies.
The government was criticized for interfering in lenders' rates for loans and deposits based on the level of household debt, which exacerbates issues related to household incomes and other factors affecting public livelihood.
Regarding CEO appointments at financial holding companies, the government expressed skepticism about the top officials extending their terms and encouraged them to step down "voluntarily" when their tenures ended.
The government's actions received some positive responses, as they aligned with efforts to improve corporate governance structures. This was especially relevant after the companies faced criticism for a lack of transparency in their decision-making processes.
“But even so, a private company being pressured by the government in choosing its leader seems to be at odds with the principle of private sector-driven growth,” the activist said.