Timing of exit strategies can vary

By Kim Jae-kyoung

Staff reporter

The nation's top central banker hinted Saturday that Korea will not rush to implement exit strategies in the same manner as other countries, saying that every economy is in a different situation.

"Countries around the world are now seeking exit strategies for the unconventional policy tools that were mobilized in the course of getting through the financial crisis," Bank of Korea (BOK) Governor Kim Choong-soo said at an economic forum held in Seoul.

"In view of the differences in the state of their economies, the timing and sequencing of exit strategies will vary from country to country," he added. "But it is vital to maintain a fundamental spirit of policy cooperation as exemplified by information sharing."

His approach toward exit plans is based on his cautious analysis of the current local conditions. He believes that the future course of the Korean economy remains unclear due to lingering uncertainty both at home and abroad.

"The future outlook is surrounded by no small degree of unpredictability with the opposing interplay of upside and downside risks," Kim said.

Regarding downside risks, he said, "Global financial market unrest recurs in response to the fiscal problems within the euro zone and China's tightening of liquidity management."

"The world economic recovery is stalling amid a sharp run-up in international commodity prices including that of oil. The recovery in business activity is constrained owing to increased failures of local small firms."

On Sunday, Kim also said that cooperation between central banks should be strengthened in a bid to ease excessive cross-border capital flows and ensure currency market stability, saying that building foreign reserves alone is not enough.

"Many emerging market economies have accumulated large volumes of foreign reserves as a form of "self-insurance." Prior to the recent crisis, there was even criticism that the volumes of the reserves in Asia were excessive," Kim said in an opening speech released one day before a conference marking the 60th birthday of the BOK.

"The crisis has proven such criticism of our so-called excessive reserve holdings to have been invalid, as reserves were in many cases still not sufficient for ensuring foreign currency liquidity."

South Korea's foreign reserves, the world's sixth largest, totaled $272.33 billion as of the end of March.

Kim added that beefing up cooperation between central banks, including the opening of currency swap lines, can help a nation ease economic costs in accumulating large volumes of FX reserves.

"It is worthwhile considering a greater broadening and institutionalization of such inter-central bank cooperation to ultimately help establish a global financial safety net," the governor said.