New Bank of Korea Chief Values Coordination Over Independence
By Kim Jae-kyoung, Cho Jin-seo
Staff Reporters
The initial response to the Bank of Korea (BOK) governor nominee was lukewarm at most, as his relationship with President Lee Myung-bak has produced worries about the central bank's role and its independence.
Kim Choong-soo now has to face criticism of cronyism when he formally takes over the job from outgoing Lee Seong-tae from next month.
President Lee made Kim his senior economic advisor when he was elected president in Feb. 2008. Seven months later, he was sent to Paris to become South Korea's ambassador to the OECD.
Market analysts expect that the new BOK governor is expected to place priority on policy coordination between the central bank and the finance ministry, considering his professional career and academic view of the economy.
National Strategy Institute President Young Soo-gil said that his academic background and international experience will cement cooperation between the central bank and government.
``He is a macroeconomist with a broad and balanced understanding about the state of the Korean economy backed by his experience at the Korea Development Institute (KDI), including as its president a few years ago, and further enhanced by his experience as the ambassador to the OECD,'' he said.
``Accordingly, his analysis of the economy is expected to be more growth-oriented than his predecessor, with close attention to the real economy, including the labor market and employment growth, especially given his earlier background at KDI as a labor economist. This would facilitate closer coordination and cooperation between BOK and the Ministry of Strategy and Finance,'' he added.
In a radio interview with KBS last Friday, Kim said he would prefer coordination over independence. ``The Bank of Korea, too, is part of the government,'' he said. ``I don't think it is appropriate if the central bank does not cooperate with the government in employing policies.''
Market analysts see him as pro-government figure, and expect no immediate changes in the central bank's low interest rate policy.
No Rate Hikes in Near Future
``He was one of the candidates who were close to the president. Kim seems like the right man for the government to work with on an exit strategy. There was no shock at all in the bond market,'' said Yoon Yeo-sam, a bond analyst at Samsung Securities.
They expect that Kim will keep the key interest rate at its record-low level at least in the first half of the year, as President Lee wants to stimulate more growth despite worries about inflation and asset price bubbles.
``(Despite the appointment) I think the consensus is solid that the BOK will wait for consumer inflation or housing price inflation to emerge as a problem or the Fed to hike its rate before it begins normalizing its target for the rate,'' ING Group senior economist Tim Condon told The Korea Times.
``Our forecast is that it will follow the Fed and hike the rate in the fourth quarter,'' he added.
Market Force Company CEO James Rooney echoed the view, saying, ``The world economy and financial system still faces many huge challenges, with leading developed economies carrying too much debt and weak prospects for their economic recovery.
``In fact I expect that the United States will face many difficulties raising their interest rate, so it will keep the pressure for low interest rates on many other economies including Korea as well. I personally see little advantage to raising interest rates, but instead see the need to manage the money supply through other mechanisms,'' he added.
Concerns Over Kim's Appointment
Opposition political parties raised criticism about the appointment.
``It is clearly a result of cronyism,'' said Democratic Party spokesman Noh Young-min. ``The BOK governor's position requires independence in implementing monetary policies. We worry whether a pro-government governor can fulfill this role.'' Other parties, except the governing Grand National Party, expressed similarly skeptical views.
None of them, however, were furious to the extent of opposing the nomination outright. Analysts also saw that Kim was actually a better choice than other candidates, such as Euh Yoon-dae, the former Korea University president, and Kang Man-soo, the former finance minister, both of whom were questioned about their capacity to do the job.
Kim's career also leaves a question whether he is a politically minded academic or an academically trained bureaucrat. Born in 1947 in Hamheung, which is now in North Korea, Kim majored in economics at Seoul National University and earned his doctoral degree at the University of Pennsylvania.
It was his 1979 paper with Michael Wachter that studied ``cohort overcrowding'' in the labor market, which explained why there was an imbalance between certain demographic groups in the labor force.
Key Tasks for New Governor
As the new BOK head, Kim is facing a series of daunting task, including leading the BOK to play a central role in reviving the economy and successfully hosting G-20 Seoul summit.
Experts said that Kim should seek to implement exit strategies in close coordination with G-20 countries while finding ways to innovate the BOK's closed culture.
``My advice to him would be for him to innovate the very `conservative' culture of the BOK and the Monetary Policy Board which thus far have tended to be much too `closed.' Its staff have not been very much interactive with `outsiders' including the members of the Board,'' National Strategy Institute President Young Soo-gil told The Korea Times.
``I hope that he will make the BOK culture more `open,' upgrading the institution to that of a leading Central Bank among the G20 members,'' he added.
As BOK Governor, Kim will be participating in the G-20 Finance Ministers and Central Bank Governments Process where there will be close international coordination on so-called exit strategies, where the balance between growth and inflation is the focus of discussion.
``I believe that his monetary policy decision will be guided by the G-20 agreements and be a balanced-one in this sense,'' Young said.