FSS chief’s volte-face a show of financial unity

The head of the Financial Supervisory Service (FSS) expressed greater concern about the risk posed by the euro zone over the weekend in a move aimed at reassuring investors by presenting Korea’s top authorities as being of one mind on the matter.

Backtracking from his earlier optimism, Governor Kwon Hyouk-se said on Sunday the threat was more serious that he had believed, bringing his views closely in line with those of Kim Seok-dong, chairman of the Financial Services Commission (FSC).

The FSS chief had taken flak for sending out mixed messages as his original comments conflicted widely with Kim’s. This raised suspicions that Korea’s financial watchdogs have not been communicating properly. Critics said the perceived lack of coordination is undermining the local financial market and could trigger more volatility.

In comments made Thursday, Kwon said he saw little possibility of the euro zone crisis heading further south, with Greece unlikely to leave the euro zone and Spain escaping a default on its national debt.

However, policy chief Kim preceded these remarks days earlier by warning the public of the dangers inherent in the euro zone crisis and comparing it to the Great Depression that sent the U.S. stock market crashing in 1929.

“As Spain’s economy is five times greater than Greece’s, the impact [of Spain defaulting] on the global economy will go beyond our wildest expectations,” Kim said in an executive meeting on June 4.

Kwon moved to qualify his previous statement on Sunday by saying that he had spoken in order to rein in investors.

“What I meant was that it would be inappropriate for the market to respond sensitively to the situation in Europe,” Kwon said, adding that he still believed the government should work to guard itself against the potential fallout from Europe.

“Countries will likely keep their [monetary] policies tight, so there could be quite a prolonged global recession,” he added.

He said Korea’s economic fundamentals remain solid owing to the high competitiveness of its exports, while consumer confidence and employment is stabilizing, citing a recent report by the International Monetary Fund.

“Domestic economic growth will inevitably slow down, but we can still achieve 3 percent growth if external uncertainties calm down.”

Meanwhile, Shin Je-yoon, first vice minister of strategy and finance, said Spain’s request to help bail out its banks yesterday will ease jitters in world markets.

“After the request, Asian currencies, including the Korean won, and the euro appreciated this morning, which is a positive sign,” Shin said.

Officials at the meeting decided that Spain helped reduce financial uncertainty by taking swifter action than was expected.

The vice minister said Korea’s financial authorities will closely monitor the situation in the euro zone until Greece holds its election on Sunday.

By Song Su-hyun[ssh@joongang.co.kr]