South Korean President Park Geun Hye nominated a Bank of Korea veteran to be the next governor, seeking to avoid controversies that have plagued past personnel picks and drive growth in Asia’s fourth-largest economy.
Lee Ju Yeol, 61, a former senior deputy governor with 35 years experience at the BOK, served during Asia’s 1997 financial meltdown, the ensuing won slump and bailout from the International Monetary Fund, a credit-card debt crisis and the global recession. Lee would replace Kim Choong Soo, whose four-year term ends March 31, the government said.
Park, who struggled to form a cabinet last year amid graft allegations surrounding four of her picks, needs a steady transition as Federal Reserve tapering adds to risks. Lee will face scrutiny over his view of Kim’s efforts to shake up a hierarchical, male-dominated culture. In 2012, Lee said rejecting old values had led to a sense of chaos at the bank.
“Lee is a safe choice given all the troubles President Park has had filling key posts and the tough scrutiny that he will face at parliament,” said Kong Dong Rak, a fixed-income strategist at Hanwha Investment & Securities Co. in Seoul.
Bond prices fell after the announcement, with the yield on government 3 percent debt due December 2016 rising eight basis points, or 0.08 percentage point, to 2.93 percent in Seoul, the highest since Dec. 13, according to Korea Exchange Inc. Today the yield fell 2 basis points as of 10:11 a.m. in Seoul.
For the first time in the central bank’s history, the nominee will face a parliamentary vetting, though the lawmakers don’t have the power to block the appointment. Lee isn’t known as a “hawk” and may alter his monetary stance according to conditions, Kong said.
During his tenure, Kim has indicated that he wants a more diverse central bank that rewards talent rather then length of tenure. He last year promoted Suh Young Kyung to be the BOK’s first female deputy governor.
Lee, who’s a professor at Yonsei University in Seoul and has a master’s degree from Pennsylvania State University, said in his farewell speech in 2012 that “values and norms built over the past 60 years were rebutted overnight,” giving many people a sense of chaos.
Lee started his career at the BOK in 1977, working in the research, foreign-exchange and monetary-policy divisions before becoming senior deputy governor in April 2009. He was a forecaster during the Asian crisis.
“What happened to us in 1997-1998 was far from anything you can imagine,” he said in an interview last month. “Who could expect a country to go bust like an individual or a company? It was a question of death or life,” he said, referring to the IMF bailout.
Today, economic growth is picking up and inflation is starting to climb after reaching its lowest level since 1999 in October. Park is trying to boost the nation’s growth potential to 4 percent, lift employment and achieve per-capita income of nearly $40,000 before her term ends in February 2018.
Lee feels a “heavy responsibility to take the post at this really critical time,” he told reporters in Seoul yesterday. “I will reveal my thoughts and plans at the upcoming parliament hearing,” he said, responding “let’s see” when asked if he’s hawkish or neutral.
Inflation was 1 percent in February and will enter the BOK’s target range of 2.5 percent to 3.5 percent in the second half of 2014, Governor Kim said in January. Economists forecast the next interest-rate move will be up, from the current 2.5 percent.
“Lee is a BOK man, period. He is a quiet man, and an academic dynamo,” said Kim Hyeon Wook, a Seoul-based economist at SK Research Institute and a former BOK economist, who worked with Lee during the 2008 global financial crisis.
As a BOK insider, Lee may share the central bank’s view that the economy is set to improve and “not feel the need for a rate cut,” said Kim Youngsung, a Seoul-based team head for fixed-income trading at Samsung Asset Management Co.
At the same time, the next governor faces pressure to avoid tightening too quickly, with Hyun Jung Taik, vice chairman of President Park’s National Economic Advisory Council, last week cautioning in an interview against lifting rates now.
The parliamentary committee will rigorously vet Lee, said Yun Ho Jung, an opposition Democratic Party lawmaker who will be part of the 26-member panel.
“It’s encouraging someone from within the Bank of Korea has been chosen,” the lawmaker said. “But we will look into both his competence and morality, and I expect him to play a role in improving domestic consumption that has been overlooked by a focus on exports if he becomes governor.”
Kim Hyun Mee, another Democratic Party lawmaker who will be on the committee, said it’s important to determine whether Lee can craft a policy that helps improve people’s livelihoods.
“A thorough vetting process is necessary above all even though his reputation I have heard so far isn’t too bad,” Kim said. The ruling and opposition parties have tentatively agreed to hold the hearing on March 19, Kim said. The lawmakers don’t have the power to veto the appointment.
Park’s office in March last year vowed rigorous vetting of personnel appointments after Park’s choices for prime minister, defense minister, fair trade commission chief and deputy justice minister all backed out following graft allegations.
Lee was promoted to deputy governor in charge of monetary policy in March 2007, with the benchmark rate subsequently falling to a record of 2 percent in February 2009. Lee became senior deputy governor and a policy board member in April 2009, and the BOK raised the policy rate five times to 3.25 percent in 2010-2011. He left the central bank in April 2012.