A question of termsThe banking industry is wondering who will replace Lee Ju-yeol when he retires as Bank of Korea governor. Liberal economist Cho Yoon-je was the most likely candidate until he was chosen by President Moon Jae-in to be ambassador to the United States. Another scholar is being mooted, but there is also the possibility of a promotion of a deputy to the governor.
Whoever is tapped to be the next chief, the bank will celebrate a meaningful milestone of having seen off five governors who completed their statutory four-year term over two decades, which is a rarity in Korean public institutions, which tend to see revolving doors at the top start spinning every five years when a new president comes to power — and especially when power shifts from one ideological pole to another.
The position of the central bank chief is highly rewarding both career-wise and pay-wise. It pays 340 million won ($318,501) a year, higher than the 224.8 million won the president of the republic gets. The term is guaranteed for four years. The central banker enjoys status at home and abroad. Although the bank’s sovereignty is assured by the law, it’s not easy to fend off political pressure.
Today, few question the sovereignty of the BOK. It was not so in the past. Until the administration of Kim Young-sam, a BOK governor on average served two years. President Kim Dae-jung guaranteed a full term when appointing Chon Chol-hwan in 1998. The legacy was continued under the succeeding liberal president and two conservative presidents. Conservative President Lee Myung-bak was not happy with Gov. Lee Seong-tae, who was appointed by his liberal predecessor Roh Moo-hyun, but nevertheless did not replace him. President Park Geun-hye did not approve of Lee’s choice of Kim Choong-soo, but again restrained her influence. Incumbent governor Lee also has been safe from the wave of replacements of conservative faces in public institutions under liberal President Moon Jae-in.
Jung Ki-hong, former vice governor of the Financial Supervisory Service, explained that there were two big changes under Gov. Chon. He took office when the county was in an international bailout following a liquidity crisis. As part of structural reform at the policy level, the central bank’s supervisory bureau was separated from the bank. The BOK thus was no longer a regulating authority and therefore less appealing to politicians. As the 1997-8 foreign exchange crisis imposed global standards on domestic financial institutions, the government could no longer meddle outright in monetary policy. This is how the BOK governor’s seat became secure even after changes in the ruling power.
Before the central bank’s supervisory bureau was liquidated, the BOK dominated financial institutions through the bureau. It decided who would head commercial banks and influenced corporations through their lenders. Lee Won-jo, head of the central bank’s supervisory bureau, who had been close to generals-turned-presidents Chun Doo Hwan and Roh Tae-woo, even had a say in naming a finance minister. Such mighty power was taken away from the central bank when the bank regulator was separated. Instead, chiefs of the policy making Financial Services Commission (FSC) and watchdog Financial Supervisory Service (FSS) ended up hardly able to finish their terms.
The Blue House plans to name a new BOK governor within the month. While it is reviewing candidates, it should consider two bigger picture ideas. First, the government must think about changing the BOK law to allow an extension of the single term for the BOK chief. Knowledge is essential in finance. Central bank heads meet once every two months. Current Gov. Lee was able to propose talks on a currency swap with his Chinese counterpart in one such meeting in June. Despite Beijing’s retaliation over the installation of a U.S. antimissile system, the two banks could extend the expiring swap agreement four months later. Many chiefs of central banks in major economies like the United States served more than 10 years.
Second, the Blue House must apply the independence rule to other authorities like the FSC, Fair Trade Commission and Prosecutor-General. The regulatory chiefs rarely finish their statutory terms. They are sacked and replaced according to the whims of the ruling power. Fixing such outdated practices should be in line with President Moon Jae-in’s campaign to root out bad traditions, customs and irregularities of the past.
JoongAng Ilbo, Feb. 1, Page 30
*The author is a columnist of the JoongAng Ilbo.