By Choi Sung-jin
But candidates of the Saenuri Party vowed Thursday to push for its legislation within 100 days of the election, adding fuel to the partisan controversy.
The Korean-style QE calls for the central bank to print money and buy industrial financing bonds issued by the Korea Development Bank and also by mortgage-based securities (MBS) held by the state-run housing corporation, to solve the nation’s two biggest economic problems of industrial restructuring and household debt.
Currently, the Bank of Korea Act stipulates that the central bank can buy only bonds guaranteed by the government, but the ruling party’s candidates are moving to revise the law to allow the government to extend payment guarantees to industrial financing bonds and MBS.
And their moves are intensifying the debate.
Kang Bong-kyun, a co-chairman of the Saenuri Party campaign headquarters who first proposed the idea, said that in this way the BOK can serve as the financial pipeline for the two most troubled areas of the economy without further lowering the benchmark interest rate from the present 1.5 percent.
Many private economists, however, express concern about such demands from the governing party.
They point out that Korea is not the U.S., EU or Japan whose monetary units are global key currencies, and the more money the BOK prints, the weaker the international trust in the Korean won will be. Opponents also doubt the effects of the additional liquidity supply at a time when even the record-low interest rate does little to lift the sagging economy.
Most of all, the central bank can reduce the key interest rate further and have other policy tools to provide soft-term loans to troubled sectors, such as small- and medium-sized enterprises, all of which makes it unnecessary for the BOK to play its last chip.
Even economists who have strenuously called for the central bank to take additional action for economic recovery appeared cautious about the ruling party’s move. “If the BOK moves toward direct allocation of credit to specific sectors, it will end up extending ‘arbitrary policy loans’ without the approval of the National Assembly,” said Professor Sung Tae-yun of Yonsei University.
Yet others doubt whether the proposal can be anything more than a campaign scheme, noting that few officials within the governing party, except for Kang, appear to know much about the details of the proposal. The governing party will likely sit and watch for the time being, gauging the voters’ responses to the stimulus plan, political watchers say.
Critics of the government say that although the proposal appears to target the ailing shipbuilding sector and swelling household debt, the focus is apparently on saving shipbuilders, as the Korean government has often done in the past.
“The shipbuilding sector is of course too big to fail, but the ultimate burden will fall on taxpayers,” a civic activist said.