KDI restoring independence from government

KDI seeking to restore independence from gov’t

By Cho Jin-seo

Staff reporter

The Korea Development Institute (KDI) is revamping its reputation as an independent research group, shedding their image of a government mouthpiece with bold advice.

The state-run think tank has become braver in recent months in criticizing the government for continuing expansionary fiscal and monetary policies, irking the finance ministry.

It is insisting that the Bank of Korea needs to raise the key interest rate as soon as possible, while the central bank, as well as the finance minister, has remained reluctant to implement an “exit strategy.”

“Now, there is growing concern over potential negative effects of the low interest policy stance which has remained unchanged despite steady economic recovery. This, combined with growing structural inflationary pressure, calls for attention to the possibility of price instability,” the institute said in its recent economic report, which was written in an unusually critical tone. “The monetary policy needs to be set toward a preemptive approach on the possibility of price instability by normalizing the policy stance of low interest rates.”

The report reads as a criticism of finance minister Yoon Jeung-hyun, for his repeated claim that it is too risky to phase out the government’s economic stimulus package, such as the low interest rate and expanded budget for infrastructure.

KDI’s chief Hyun Oh-seok stands by its defense of its researchers, comparing their role to weathermen. “It is no use forecasting rain after the monsoon has already come,” he told reporters last week.

The call from the KDI was received with keen attention in the market, as the institute has been known as the mouthpiece of government policies over the past few years. Founded in 1971, it has been the leading state-owned think-tank, and has provided policy advice to the rapid economic development of South Korea for over 30 years.

Many have questioned the organization’s independence especially since Kang Bong-kyun, formerly the finance minister, was appointed to the president’s position in 2002. Kang, who also served as a lawmaker for the Uri Party, was suspected of undermining the independence of the KDI since he was a career public servant at the finance ministry and had close links to bureaucrats and politicians.

A similar suspicion was raised when the current president Hyun was appointed in March 2009. He too had a career as a public servant in Korea, formerly serving as deputy minister of finance. But this year, Hyun has been at odds with the government and the finance minister Yoon Jeung-hyun, calling for an immediate shift to an “exit strategy” in public.

Hyun, who holds a doctoral degree from the University of Pennsylvania in macro economics, criticized the policies of the finance ministry and the central bank as they keep the interest rate at a record-low level.

“(The central bank) should be very careful in adjusting the interest rate, because it is interpreted as a strong signal in the market. But if it misses the right timing, than it will become even harder to adjust later,” he said.

Both Hyun and Yoon entered the public sector by passing the national bar exam in the 1970s. Yoon is four years senior to Hyun, passing the exam in 1971.

Hyun alluded that it is his intention to prepare a critical report, by giving an account of his academic mentor. He was taught econometrics by Nobel-prize winner Lawrence Klein while at the University of Pennsylvania. Klein was famous for building economic forecast models on computers, yet he stressed the role of human gut-feeling, Hyun says.

“Professor Klein once joked that the main difference between him and his graduate students was that he uses a grease pencil ― changing numbers (without running computer programs) was the professor’s role,” he said.