Acting Chief Justice Choi Sang-mok's Appointment as Constitutional Court Justice an Inevitable Decision Considering Economic Conditions
Calls for Restraint in Criticism and Unity Among Ruling and Opposition Parties
Political and Economic Uncertainties Grow Unprecedentedly, Flexible Approach Needed for Interest Rate Cuts
Lee Chang-yong, Governor of the Bank of Korea, is reading the New Year's address at the opening ceremony held on the 2nd at the Bank of Korea in Jung-gu, Seoul. Photo by Bank of Korea
Lee Chang-yong, Governor of the Bank of Korea, evaluated the appointment of Choi Sang-mok, Acting President and Deputy Prime Minister for Economy, as a Constitutional Court Justice as an inevitable decision made considering the difficult domestic economic situation rather than politics. He also urged restraint from criticism without alternatives. He emphasized that this decision should reduce the possibility of impeachment against the head of state administration and that the ruling party, opposition, and government should unite to revive the economy.
Choi Sang-mok's Decision After Deliberation, Need to Unite Rather Than Criticize
At the New Year's ceremony held on the 2nd at the Bank of Korea headquarters in Jung-gu, Seoul, Governor Lee said, "Acting President Choi Sang-mok made a difficult but inevitable decision considering the economy rather than politics to prevent a decline in external credibility and a political vacuum," adding, "This will be a starting point to inform both domestic and international parties that our economic system will operate normally and independently from the political process going forward."
He emphasized that it is difficult to stabilize the economy with monetary policy alone under the current circumstances and that politics must quickly find stability. "If the political conflict continues and the political vacuum persists, it will negatively affect external credibility and add direct and indirect shocks to the overall economy, so it is more important than anything else that the head of state administration is maintained stably," he said.
Governor Lee has been holding the Macroeconomic and Financial Issues Meeting (known as the F4 meeting) with Acting President Choi Sang-mok, Financial Services Commission Chairman Kim Byung-hwan, and Financial Supervisory Service Governor Lee Bok-hyun to review and respond to domestic economic issues.
He expressed frustration over criticism of Acting President Choi. "Cabinet members responsible for state affairs should also consider the impact on our economy if Acting President Choi had not taken such actions," he said. "Once a country's credit rating drops due to political issues, it is extremely difficult to raise it again." He added, "Now is the time for the ruling and opposition parties to cooperate to stabilize the head of state administration," and "In this process, the Bank of Korea will also play the role of a breakwater, maintaining balance amid the storm and advising government policies to protect external credibility."
Regarding this year's base interest rate, he said that while pursuing rate cuts, the speed will be decided flexibly. Governor Lee stated, "Political and economic uncertainties are greater than ever this year, so monetary policy needs to be operated flexibly and nimbly according to changing circumstances," adding, "As conflicts among policy variables such as inflation, growth, exchange rates, and household debt are expected to increase, the pace of rate cuts will be flexibly determined based on incoming data."
Economic Difficulties, Focus on the Birth of Innovative Companies to Regain Vitality
He diagnosed that the conditions surrounding our economy this year will be more difficult than ever. Externally, he judged that if the new U.S. administration's protectionist policies become full-fledged, global trade will shrink, making exports difficult. He also suggested the possibility that exchange rate volatility may continue for a considerable period as the U.S. economic boom persists and U.S. interest rate cuts proceed more slowly than expected.
Domestically, he pointed out that if interest rate cuts continue, it could develop into instability factors such as household debt, and if political uncertainty persists depending on political developments, the negative impact on the economy could increase, overlapping with the worsened external conditions.
He emphasized that the birth of innovative companies is essential for our economy to regain vitality. Governor Lee explained, "Our export structure has not diversified and has become fixed around a few key products such as semiconductors and automobiles, raising concerns about export slowdown," adding, "As the entire export fluctuates according to the cycle of specific industries, China, a latecomer, is catching up with us in key industries."
He said, "New industries that should lead future exports have not been developed over the past decade," pointing out, "Comparing the top 15 companies by sales in Korea and the U.S. ten years ago, seven new companies entered the U.S. list, while in Korea, only one company has practically entered as a new growth business, indicating almost no new entries."
He emphasized, "The lack of new growth companies or industries in our economy may be because we have avoided managing the social conflicts that accompany the 'creative destruction' process emphasized by Schumpeter, seeking stability instead."
He also voiced concerns about household debt. Governor Lee said, "As concerns about economic slowdown grow this year, voices calling for postponing household debt management and focusing more on economic stimulus are increasing," but warned, "If we do so, we may repeat past mistakes of ignoring future risks to alleviate immediate economic slowdown pain."
He added, "While micro adjustments to non-real estate household debt and real estate loans outside the metropolitan area can be considered in light of the economy, the macroprudential policy stance that household debt growth should be managed within nominal economic growth must be maintained without wavering."
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