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The economist is here

June 29,2018
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Yi Jung-jae
*The author is a columnist of the JoongAng Ilbo.

When a new senior presidential secretary for economic affairs walks through the door, it usually means a change in policy direction. That was true when liberal President Kim Dae-jung sacked progressive economist Kim Tae-dong after just three months on the job, leaving seasoned bureaucrat and Finance Minister Kang Bong-kyun to lead reforms.

Much-feared restructuring of the debt-stricken financial and industrial sectors took off under Kang’s relentless drive. Monetary authorities managed to cut interest rates while fiscal and industrial policymakers wrestled with banks for financing, and chaebols were forced into streamlining.

But reforms in bureaucracy itself failed because bureaucrats were tasked with the restructuring themselves. Kang recalled that he was chosen for practical reasons by the late president, who hoped to graduate from the post-crisis IMF bailout as soon as possible.

President Moon Jae-in on Tuesday replaced his senior secretary of economic affairs, Hong Jang-pyo, often dubbed the architect of Moon’s income-led growth policy, along with his policy chief Jang Ha-sung. But seating a traditional economic bureaucrat — Yoon Jong-won, the Finance Ministry’s representative to the Organization for Economic Cooperation and Development — in Hong’s spot does not on its own signal a fundamental change in policy. The Blue House claimed the appointment was made to give new traction to income-led growth.

Nevertheless, the replacement is a positive sign. The Blue House, originally filled with progressive scholars and civil rights activists, has finally found an expert on macroeconomic affairs. He joins the presidential policy team at a time when clouds are gathering fast in the global economic environment.

The latest hike in the U.S. federal funds rate has widened the gap between interest rates in the United States and Korea by 50 basis points as the Bank of Korea has not been able to lift its benchmark rate to keep up due to fragility in the domestic economy and alarming household debt. If the Fed delivers two additional hikes during the rest of the year as it has forewarned, the average U.S. rate will be 2.25 percent by year’s end.

The policy rate has stayed at 1.50 percent in Korea since November. If the Korean central bank inevitably makes a hike to keep the gap with the U.S. rate at a manageable level, higher interest rates would further aggravate our households laden with debt of 1,500 trillion won ($1.38 billion) against income stagnancy and job insecurity.

Meanwhile, the trade war triggered by Trump’s nationalistic agenda is intensifying. The developments bode badly for Korea’s export-reliant economy amid worsening domestic demand. A bureaucrat with experience in international finance and macroeconomic planning can bring more balance to the Blue House. If President Moon had made such a balanced choice a year ago, Seoul could have dealt with foreign exchange, interest rate and trade challenges more effectively.

Yoon’s appointment could also reinvigorate the lethargy in the bureaucratic community. The Moon administration’s engrossment with clamping down on “past ills” has deadened bureaucratic activity. The president himself said bureaucrats are not fit for a reform drive. Kim Dong-yeon, deputy prime minister and finance minister, was the only career government official among 18 ministers. A director general of the Industry, Trade and Energy ministry was even arrested for meddling in appointments in the past administration. Government officials kept themselves as low as possible lest they draw scornful eyes from the Blue House. They would be relieved to see one of their people in office.

While it is in a changing mood, the ruling power should keep in mind two things.

First, it should not employ Yoon simply as a figurehead. There are too many nagging keepers in the Blue House — from the policy chief, to senior aides, to the president — who all pride themselves as the inner circle. Moon should give Yoon more maneuvering room so that he can add expertise on macroeconomic policy navigation.

Second, Yoon should not be placed above Deputy Prime Minister Kim Dong-yeon. Kim has so far maintained a balancing role with his coordinating skills and outspokenness. His assertiveness often triggered skirmishes with Jang, the liberal policy chief. The Finance Ministry fears that Yoon may have been brought in to contain Kim. The Blue House already has an outsized role in this administration. But no matter how competent the command system, policies cannot run well if the crew onboard is not willing to pursue them until the very end.

JoongAng Ilbo, June 28, Page 34