Putting their heads togetherAmid alarm about spillover from the Chinese stock crash, Deputy Prime Minister and Finance Minister Choi Kyung-hwan and Bank of Korea Governor Lee Ju-yeol had talks for the first time in 13 months. Lee expressed concerns about growing risks from outside the region and at home, while Choi emphasized the need to push ahead with structural reforms.
The Korean economy faces serious challenges at home and abroad. On the global front, the climate is turning more perilous and unpredictable, with the Chinese economy cooling down faster than expected and uncertainties about monetary tightening by the United States continuing to grow. Any upset in China would directly hit the Korean economy, as it relies heavily on the demand and market of the world’s second-largest economy.
In the two weeks after the Chinese yuan was devalued by the central bank on Aug. 11, about $2.9 billion worth of foreign capital pulled out of the Seoul stock bourse. The amount was tantamount to the combined withdrawals from the markets of Taiwan, Thailand and Indonesia. Domestic conditions are worse. The quick slowing of Korean exports suggests the competitiveness of Korean brands is being questioned. Domestic consumption and investment has remained sluggish so long that authorities and experts are now concerned with deflation. The government has injected a supplementary budget, and the central bank lowered the interest rate to a record low of 1.5 percent, but the local economy has failed to recover. Household debt continues to snowball, exceeding 1,100 trillion won ($932 billion). Even all-out concerted endeavors from the government and central bank are of little help.
During emergencies, fiscal and monetary policies must be immaculate because there cannot be any room for mistakes. The chiefs of financial and monetary policy did not mention interest and monetary policy during their recent talks. But flexibility is needed in demanding times. The pride of the central bank and protectiveness of its sovereignty should not be an issue when the economy is at risk.
Fiscal and monetary policy must go hand in hand. The economy cannot run smoothly if the policies run out of tune. Communication and coordination is important. The finance minister and the central bank head should meet every week if necessary. They must put their heads together to navigate the economy skillfully against a turbulent wave.
JoongAng Ilbo, Aug. 29, Page 26