[Opinion] 'Choi Deputy Prime Minister and Lee Governor' After 10 Years

It was 10 years ago. On September 21, 2014, then Deputy Prime Minister and Minister of Strategy and Finance Choi Kyung-hwan visited Australia to attend the G20 Finance Ministers and Central Bank Governors meeting, where he had a private meeting with Lee Ju-yeol, Governor of the Bank of Korea. Introducing this meeting, former Deputy Prime Minister Choi said, "We didn’t even mention the word ‘interest rate,’ but isn’t it like ‘if you pretend, I pretend’?" The Bank of Korea had lowered the base interest rate from 2.5% to 2.25% the previous month. The Monetary Policy Committee meeting was scheduled for the following month. Controversy arose with comments such as ‘This is a statement that undermines central bank independence’ and ‘Did the two coordinate their words?’ A few days later, former Governor Lee Ju-yeol responded at an economic trend briefing, saying, "We actively implemented policies for growth, but there are limits to fiscal and monetary policies alone. Above all, structural reform is necessary," emphasizing the government's role.

On the 30th of last month, Lee Chang-yong, Governor of the Bank of Korea, visited the Ministry of Strategy and Finance (MOSF) at the government complex in Sejong City. This was the first time a Bank of Korea governor visited the MOSF. The MOSF minister has only visited the Bank of Korea four times so far. Deputy Prime Minister and MOSF Minister Choi Sang-mok called it a "historic event" that the Bank of Korea governor visited the MOSF. This visit was arranged after Governor Lee expressed his desire to reciprocate when Deputy Prime Minister Choi visited the Bank of Korea in February. On that day, the two held a ‘town hall meeting’ at the MOSF with about 150 people, including MOSF and Bank of Korea staff and young interns, under the theme "Korean Economy, Untying the Gordian Knot: Structural Reform for a Sustainable Economy."

Both the MOSF and the Bank of Korea drew a clear line, stating, "This meeting is to find solutions to the structural problems Korea faces." This was to block internal and external speculation that there would be discussions related to the Bank of Korea’s monetary policy ahead of the October Monetary Policy Committee meeting.

The meeting between the two leaders proceeded in a warm atmosphere. When Governor Lee arrived, Deputy Prime Minister Choi Sang-mok warmly welcomed him, saying, "We warmly welcome the visit of the head of the wise (賢人) to the MOSF." The ‘head of the wise’ was a metaphor for the Bank of Korea governor. Deputy Prime Minister Choi explained, "When I visited the Bank of Korea in February, I called it a ‘wise partner’ and added ‘wise’ because of the excellent talents at the Bank of Korea." This was a special courtesy shown to the Bank of Korea governor.

Governor Lee Chang-yong responded, "Although advanced countries and emerging countries similar to us have raised interest rates significantly, we were able to quickly stabilize inflation by raising rates by 300 basis points thanks to the MOSF’s efforts to maintain fiscal policy safely and soundly, unlike other advanced countries," and added, "I am grateful for the help and hope this will be an opportunity for continued policy coordination."

The current economic situation resembles that of 10 years ago. It is a phase where interest rates need to be lowered to stimulate domestic demand, but due to other uncertainties, it is difficult to implement an unconditionally accommodative monetary policy. In the past, corporate restructuring was the obstacle; now, the real estate market and household debt are holding back progress. Coincidentally, the two pillars of macroeconomic policy?fiscal policy and monetary policy?are led by Deputy Prime Minister Choi and Governor Lee.

Former Deputy Prime Minister Choi Kyung-hwan was able to meet former Governor Lee Ju-yeol again only at the end of August 2015, a year after the ‘if you pretend, I pretend’ controversy. However, Deputy Prime Minister Choi Sang-mok and Governor Lee Chang-yong meet weekly. Through the so-called ‘F4 meetings,’ they regularly discuss economic issues together with the Financial Services Commission chairman and the Financial Supervisory Service governor.

In fact, the Bank of Korea’s monetary policy is decided by the Monetary Policy Committee members. The governor cannot unilaterally decide. In this regard, the meetings between the Deputy Prime Minister and the Bank of Korea governor do not pose a significant risk to the central bank’s independence. The MOSF and the Bank of Korea sometimes express differing opinions on the pace of monetary policy and solutions to major issues.

Considering the state of the Korean economy, the frequent meetings between the two leaders are rather overdue. Governor Lee Chang-yong pointed out, "Leaving the old economic structure as it is and gradually repairing it while leading our economy has now reached its limit," and Deputy Prime Minister Choi Sang-mok diagnosed, "The Korean economy faces a crisis of sustainability as structural problems such as weakened growth potential, reduced social mobility, and population onus (growth slowdown due to a declining working-age population) accumulate." Both leaders, as well as staff from both institutions, hope to frequently meet and find clues to solve Korea’s structural problems.