BOK to Come Under Pressure to Cut Rates
By Lee Hyo-sik
Staff Reporter
The Bank of Korea (BOK) may face uneasy relations with the upcoming Lee Myung-bak administration over its monetary policy as one of the President-elect's key economic architects has a long history of conflicts with the central bank.
Former Vice Finance Minister Kang Man-soo, head of the economic affairs subcommittee on Lee's transition committee, overseeing macroeconomic policy issues, was often at odds with the BOK in the 1990s when he worked at the Finance Ministry.
He had openly demanded the central bank refrain from raising the key interest rate to keep borrowing costs low and boost economic activities, clashing with the bank's policy that places top priorities on taming inflation through interest rate hikes at the expense of business activities.
Kang first clashed with the BOK over the monetary policy in March 1990 when he was the director of the Finance Ministry's monetary policy consultation team with the central bank. At that time, the central bank tightened its monetary policy to rein in a rise in the prices of real estate and consumer goods
However, Kang and other ministry officials claimed the bank should provide more liquidity to the market, rather than raise interest rates, to help relieve financial difficulties facing large businesses.
Kang also said the BOK should consult with the government about its monetary and interest rate policies, denying the central bank's independence.
In March 1997, the conflict between Kang and the BOK entered its second round. Kang as vice finance minister was spearheading the ministry's move to revise the law governing the central bank. It wanted to separate the rate-setting monetary policy committee from the central bank.
The ministry also pushed to establish the Financial Supervisory Commission by taking the authority to supervise banks away from the BOK. Such moves invited a strong protest from the central bank. But in December that year, the National Assembly passed the revised bill.
Now, Kang is about to enter a third round of clashes with the central bank, as he is widely expected to take up a key economic post in the new administration. He recently said keeping interest rates low is the key to boosting economic activities along with low tax rates.
The BOK has said it will actively cooperate with the transition committee, but added that it is not desirable for the country to blindly seek high economic growth that could build up inflationary pressure on the economy, indicating its monetary policy will not be swayed too much by the new administration.