Keep the BOK independentKim Choong-soo, Korea’s ambassador to the Organization for Economic Cooperation and Development, has been selected as the next Bank of Korea governor. Selecting Kim is a safe choice. His capabilities have already been proven through his experience as head of the Korea Institute of Public Finance and first senior secretary for economic affairs for the president. He has an array of skills and is a solid leader.
Kim seems to be a better choice than the other candidates discussed because he is a rationalist with a healthy amount of common sense. He’s also a staunch follower of the principles of openness and autonomy.
Nevertheless, there are a few points of concern.
The biggest one revolves around his previous role as the president’s senior secretary for economic affairs.
The Bank of Korea plays a key role in the independence of the country’s currency policy. There is already talk in the market that under Kim cooperation with the government will be emphasized more than independence. There is little hope that the BOK will raise the base rate during the first half of this year, and some observers even worry that the Blue House will lead future monetary policy decisions.
This may be extreme talk, but we hope Kim will think hard about why people are reacting this way. As he said, “The Bank of Korea is part of the government.” Monetary policy is part of economic policy, and thus cooperation with the government is necessary in that respect.
Problems arise with the method and content of that cooperation. Under the law governing the Bank of Korea, the final say in monetary policy decisions belongs to the BOK’s monetary policy committee. However, if the main emphasis is on cooperation and communication with the Blue House or the government, that could change.
The market is concerned that the Bank of Korea may miss the correct time to unwind policies enacted during the economic downturn because it is too busy trying to revive the economy.
It could, therefore, forget its fundamental purpose of stabilizing prices. At times, the BOK needs to have the perseverance to stick to its convictions even if the government opposes certain measures.
It also concerns us that the nominee is not a financial expert. He has a doctorate in economics but has no experience working on a financial monetary committee or at a financial company.
The top spot at the BOK requires expertise, great insight and knowledge of economic matters. We ask Kim to ensure he establishes an independent view on monetary policy as soon as possible. This is the only way to stick to the rules of restraint and balance.