By Kim Tae-gyu
Staff Reporter
Korea's top financial regulator is preparing to preemptively thwart any negative repercussions caused by hitherto expansionary fiscal policies.
Toward that end, Financial Supervisory Service (FSS) Governor Kim Jong-chang met with the International Monetary Fund team led by chief economist Olivier Blanchard to ask their advice, Thursday.
``Governor Kim sought recommendations from Blanchard in a host of areas. One of their focuses was how to minimize the side effects of pump-priming measures,'' FSS Deputy Director Ban Young-hee said.
``Potential problems, which could be created by expansionary fiscal policies and support for small-sized firms, were discussed. In addition, the FSS' role in the post-crisis era was one of the major topics,'' Ban said.
Kim also expressed his concerns on inflation, which is feared due to massive liquidity channeled by the government into the market.
In response, Blanchard said concerns on inflation are not specific to Korea.
Experts said that it was the right time for the FSS head to gear up to handle any headaches generated by the extraordinary fiscal and monetary policies.
``Both expansionary fiscal policies as well as monetary easing are very unusual steps that can be employed only in emergency,'' said a Seoul analyst who declined to be named.
``Those measures have side effects. If financial regulators do not step in at the right time, we could be in big trouble. In that sense, Kim's approach seems to be appropriate,'' he said.
Ban said Blanchard also praised the country's contingency plans aimed at fighting against protracted financial distress, such as the bank recapitalization fund.
Blanchard visited Korea for an annual meeting with government organizations including the Ministry of Strategy and Finance and the Bank of Korea as well as the FSS.
As one of the most authoritative macroeconomists, Blanchard took the post of IMF chief economist early September 2008, just before the collapse of Lehman Brothers.
He earned his Ph.D. in economics at Massachusetts Institute of Technology and taught there and at Harvard before taking the job.