+ A

BOK chief agrees with IMF on monetary policy

Supplementary budget is also being drawn up by Finance Ministry
Mar 26,2019
Bank of Korea (BOK) Governor Lee Ju-yeol said the central bank will adopt an accommodative monetary policy, which was recommended by the International Monetary Fund (IMF) two weeks ago, to help the Korean economy achieve stable growth.

The central bank governor’s comment came on the heel of the Finance Ministry mulling a supplementary budget also proposed by the IMF to help the Korean economy reach its 2.6 percent to 2.7 percent growth forecast for this year.

“We will maintain an accommodative monetary policy that would back up our economy’s stable growth while managing [monetary policy] in closely evaluating all aspects of newly acquired indices, including inflation and financial market stability,” Lee told lawmakers on the Strategy and Finance Committee at the National Assembly on Monday.

He said the economy continues to meet its potential growth rate, especially with consumption on the rise and sluggishness in exports and facilities investment improving.

Yet he noted increasing uncertainties coming from external factors including U.S. and China trade negotiation and the Britain’s Brexit.

“The global economic growth deceleration will be heavily influenced by the ongoing trade negotiation between the United States and China, as well as the Brexit progress,” Lee said.

The governor said now is the most appropriate time to tap into greater fiscal spending.

“If the supplementary budget is 10 trillion won [$8.81 billion], it is roughly around 0.5 percent of the GDP,” Lee said. “This amount will be effective enough to increase [economic] growth,” Lee added.

The governor’s comments came on the heels of the Finance Ministry planning a supplementary budget.

On Friday, Finance Minister Hong Nam-ki told reporters that the government is currently looking into the supplementary budget, although he said the size of the budget was still not discussed.

If the government pursues the supplementary budget, it would be the fourth consecutive year for supplementary budgets. Two were introduced by the Moon Jae-in government.

On March 12 the Korean mission of the IMF recommended that Korea adopt a more accommodative monetary policy and tap into a 0.5 percent GDP equivalent supplementary budget to meet this year’s government economic goal.

“We genuinely believe the government’s target of 2.6 percent to 2.7 percent is feasible this year,” Tarhan Feyzioglu, IMF mission chief to Korea, said, “provided that there’s a large supplementary budget.”

He added that considering the headwinds that Korea is vulnerable to, including a slowing global market, now is the time for the Korean government to intervene in bolstering economic growth. “We strongly encourage the government to have a supplementary budget issued as early as possible.”

He also said that economic growth of 2.6 percent and 2.7 percent could only be achieved when it is “complemented with accommodative monetary policy.”

There have been growing concerns over slowing economic growth.

The Korea Economic Research Institute (KERI) was the latest think tank to lower its outlook for this year’s growth.

On Sunday, the KERI released a report that projected Korea’s growth for this year at 2.4 percent. That was down 0.3 percentage points from its outlook at the end of last year.

It is also the lowest among all economic growth outlooks projected by both private and public think tanks.

Other institutions have also been readjusting their outlook for Korea this year.

Earlier this month, Moody’s lowered its growth outlook to 2.5 percent, down from 2.7 percent made in November, while the Organization for Economic Co-operation and Development (OECD) shaved off 0.2 percentage points from its projection made in November to 2.6 percent.

While the government is expected to include measures that would create jobs, as well as tackling fine dust pollution, there has been criticism that this administration has been relying too much on supplementary budgets.

In 2017. the Moon administration initiated an 11.2-trillion-won supplementary budget to make up for corporate restructuring. Last year, a 3.9-trillion-won supplementary budget was created to help boost the number of jobs.

“It would be difficult for the government to avoid the temptation of a supplementary budget since even a 0.1 percentage point to 0.2 percentage point increase in a time of low growth of 2 percent to 3 percent could have a massive [political] influence,” said Yoon Chang-hyun, a University of Seoul finance professor. “Taking out the supplementary card in the first quarter even before the ink on this year’s budget is dry can only be seen as an action that is aware of next year’s general election and boosting [the administration’s] popularity.”


BY LEE HO-JEONG, KIM KI-HWAN [lee.hojeong@joongang.co.kr]