Bank of Korea deputy governor Lee Seong Tae has been chosen to lead monetary policy for the next four years. While it might be somewhat problematic that he went to the same high school as president Roh Moo Hyun, his expertise and reputation at BOK give us no reason to doubt he was one among those qualified to assume the top position there. The burden on his shoulders is a heavy one. The task immediately before him is setting monetary policy back on track by getting control over all the money floating around as a result of a long period of low interest rates. He also has to increase market confidence in the central bank.
We recommend that he use his predecessor, Park Seung, as an example of what not to do. Park did some things right, but the negative side to his choices provides Lee with a lesson to be learned about where to go from here. There is a painful moral to the story in Park's failure seen in how he lowered call rates when the real estate market was unstable and in doing so grew a bubble in assets. Park also spoke a lot for the head of a central bank, and he fostered distrust in the bank with occasionally imprudent commentary and inconsistent economic assessments. Earlier this month the Hankyoreh asked 20 economists what virtues are desirable in the next BOK governor, and many among them said "the insight that allows him to assess and predict the economy" and "the ability to guide the market." Those are interconnected.
First and foremost, Lee needs to keep from finding comfort in price goals. Stable prices are a global phenomenon, not an accomplishment. He needs to avoid having an attitude that is weak on asset price trends. The rapid rise in asset pricing increases the cost for everything, more so than unstable consumer prices. The collapse of the bubble then hurts finance and macroeconomic stability. The central bank's duty is to prevent that from happening. Loose monetary policy has to be dealt with also in the sense that it has contributed to the bubble in asset prices. If Lee finds the law as revised in 1998 that defines the goal of monetary policy as price stabilization is holding him back, he needs to go ahead and do his job even if it means lowering the target goal or seeking an amendment of the law.
The Hankyoreh, 24 March 2006.
[Translations by Seoul Selection]
[Editorial] What New BOK Governor Should, Shouldn't Do |
