The cowardice of ‘I warned you!’

Koh Hyun-kohn
The author is a senior editorial writer of the JoongAng llbo.

People had to take responsibility for the liquidity crisis in late November of 1997. Quite a number of economic bureaucrats were sacked. Some had to serve prison time. But the Bank of Korea was not blamed. The Board of Audit and Inspection (BAI) found that the central bank had warned of the serious thinning of the foreign currency reserves quite often — 23 times from March to November in 1997.

Did the bank do all it could by raising the alarm? At the time, it took responsibility for not only monetary policy but also for the oversight of banks and non-bank lenders. Since the liquidity crisis originated with the banking and non-banking financial institutions, the central should have been held accountable. But all the blame went to the Finance Ministry. The conclusion was that the Finance Ministry had ignored the Bank of Korea’s repeated warnings.

Asset values have shot up due to the protracted low-interest environment. The gap between the real economy and financial markets has widened steeply. Bubble signs are evident. The central bank is as skillful as in the past. Soon after entering the new year, Gov. Lee Ju-yeol warned that the rise in stock prices was “very fast and could shake even at a small shock.” The spike in asset values resulted from policy failures from the government. But the bigger reason is the depreciation of the currency value and lush liquidity. So, the central bank cannot be free from liability for keeping the rates at record low levels. The central bank should not be an onlooker, but a responsible party for the ongoing crisis, as it should have been in 1997. But the Bank of Korea chief remains as ambiguous as ever, commenting that he could not judge if markets were gathering “bubbles,” but nevertheless found them concerning.

Yet he maintained that the central bank should maintain loose monetary policy despite the overheating signs. He packaged the contradiction with carefully chosen words. He was more or less leaving an “alibi” that he had warned, even as the bubbles are building up.

Former U.S. Treasury Secretary and Harvard University economist Larry Summers has warned of inflation in the United States as a result of Washington’s massive Covid-19 relief measures. The colossal fiscal spending plan under President Joe Biden has stoked U.S. Treasury note yields and oil prices. Loan rates in Korea are also moving up. Even as Fed chief Jerome Powell reassured that the central bank was not going to move to raise rates any time soon, U.S. markets remain jittery. If the bubbles burst, the Bank of Korea would recite that it had warned already. Investors burned by the depreciation in stocks and housing would have to blame themselves for ignoring its warnings.

The bank’s adroitness has also infected government employees. Hong Nam-ki, deputy prime minister for economic affairs and finance minister, complained that public finance is not a piggy bank. But he has repeatedly yielded to political pressure on carefree spending plans.

Whether he is seriously worried about the health of state coffers is questionable as he had reversed his stance eight times. When President Moon Jae-in proposed a universal “comfort” check handout to every citizen and endorsed a 28-trillion -won ($26 billion) project to build a new airport on Gadeok Island off Busan, Hong kept his mouth shut. He may have feigned the offer of his resignation last year to leave the record that he had staked his seat to warn against reckless spending.

His posting on Facebook of his opinion against a ruling party move or his breaking into teary voice during public coverage does not suit a reliable deputy prime minister in charge of economic affairs. He may be saving himself, but he is anguishing his ministry. Eun Sung-soo, chief of the Financial Services Commission (FSC), is equally cowardly. He vowed to normalize stock short sales as planned in March, but retreated under political pressure. He too had made an excuse for himself for what he had opposed.

Government employees could be in agony during the final year of a presidential term. They would wish to keep to their seat but ensure that they avoid the liability when the payback time arrives. They had witnessed how frightful revenges and punishment can be under a new government.

They will gradually become more assertive against the outgoing president. Various government offices have left on record that they have opposed to the Gadeok airport project. Moon may be most naïve. He has been jubilant over the Kospi gains and wishes to hand out “comfort” money to every citizen and build a new airport in Busan, his hometown.

If the bubbles burst and moment of truth comes, the blame could land entirely on the president.

COL-B