In South Korea, a Debate Emerges on New Role for Central Bankby
BOK governor says central bank will perform necessary role
Opposition party against BOK assistance to ailing companies
The Bank of Korea’s chief indicated that the central bank will help the government revamp ailing shipbuilders and other companies, adding that the form of assistance would need to be discussed with relevant ministries.
Corporate restructuring is an important task for South Korea’s economy, and the central bank will perform a necessary role during the process, BOK Governor Lee Ju Yeol said in a meeting on Monday. His deputy, Yoon Myun Shik, told reporters last week that raising capital for state-run lenders is basically the role of the government and a consensus is needed for the BOK to use its powers to aid restructuring.
The South Korea government is seeking to reduce debt and streamline businesses in the shipping and shipbuilding sectors, where companies are losing money as a result of plunging oil prices. President Park Geun Hye and ministers have called for the central bank to ensure the fiscal soundness of state-run lenders that are heavily exposed to the indebted companies.
The BOK needs to perform a so-called “Korean style quantitative easing” to reduce national risks from corporate restructuring, the Financial Services Commission said in a statement. Measures could include the BOK buying bonds issued by the state-run Korea Development Bank and Export-Import Bank of Korea to boost their liquidity, increasing their capital through investment from the central bank, or fiscal measures, according to the statement.
“The current quantitative easing discussion in Korea is different from what we see in other countries, and is about ways to increase state-run lenders’ capital,” said Kim Jung Sik, a professor of economics at Yonsei University. “The BOK and finance ministry should make a prompt decision on whether they should be using the fiscal budget or central bank money to support the lenders, rather than dragging out the debate.”
South Korea’s biggest newspaper reported on Monday that the BOK isn’t doing what it could to accelerate the pace of corporate restructuring, and was clinging to the principle that it should remain independent from the government. The Chosun Ilbo newspaper said in a front-page story that South Korea could miss a “golden time” for corporate restructuring if the central bank doesn’t change its stance that it can’t be directly involved in corporate restructuring.
The Bank of Korea so far has refrained from saying what policy action it might take in restructuring. Its labor union and the opposition party are against the idea of using central bank money to rescue ailing companies.
The BOK’s labor union said in a statement last week that the government asking the central bank to fund corporate restructuring is inappropriate and that the government should take responsibility for companies that have failed while being supervised by state-run lenders. South Korea’s opposition Minjoo Party said last week that it’s damaging to central bank independence to ask the BOK to fund corporate restructuring.