Rhee Changyong: "Remarks on Supplementary Budget Spark Political Neutrality Debate... Time Will Judge Right or Wrong"

"As an Honor for Global Leaders"… Acceptance Speech for the 'FPA Medal'
"Economists Sometimes Need to Be as Practical as Politicians"

"As I feared, my remarks about the supplementary budget (Chugyeong) have sparked controversy over political neutrality, but time will ultimately judge whether my decision was right or wrong."

Yonhap News Agency

Bank of Korea Governor Rhee Changyong received the 'FPA Medal' at the Foreign Policy Association (FPA) awards ceremony held in New York, USA, on April 21 (local time). The FPA Medal is a prestigious award given to individuals who have made a positive impact on the international community and demonstrated responsible global leadership. On this day, Governor Rhee was a co-recipient alongside Mathias Cormann, Secretary-General of the Organisation for Economic Co-operation and Development (OECD). Past recipients include former European Central Bank (ECB) President Jean-Claude Trichet, former US Federal Reserve (Fed) Chairman Paul Volcker, and International Monetary Fund (IMF) Managing Director Kristalina Georgieva.

In his acceptance speech, Governor Rhee emphasized, "A central banker (governor) must maintain political neutrality, but as Keynes once said of his mentor Marshall, economists sometimes need to be 'as practical as politicians.'" He stated, "I fundamentally agree that central banks must not abuse the privileges that come with independence and should be strictly limited to carrying out their narrowly defined mandates, such as price stability. However, in the face of unexpected and extreme situations like the recent political instability in Korea, I believe central banks also need a certain degree of flexibility."

Governor Rhee reflected, "During the recent period of political turmoil, I carefully considered the risk that my statements as central bank governor could be misunderstood as undermining political neutrality." He added, "With the possibility of a presidential impeachment leading to an early election and the two main parties holding opposing views on fiscal policy, any mention of fiscal stimulus could have been perceived as political bias."

However, as domestic demand contracted more rapidly than expected following the imposition of martial law,he explained that he had no choice but to raise the need to mitigate side effects through a supplementary budget, given the sharp decline in market forecasts for economic growth. Governor Rhee added, "If the supplementary budget bill is passed in a bipartisan manner, it would send a message to international investors that Korea's economic policy remains stable and unaffected by political circumstances, making it the most effective way to protect the country's sovereign credit rating."

He also expressed concern about the high level of uncertainty in the global economy and Korea's economic situation. Governor Rhee said, "Although the inflation surge following COVID-19 has somewhat eased, global supply chains are being reorganized and economic fragmentation is intensifying due to trade conflicts and geopolitical tensions." He continued, "The IMF will significantly lower its global economic growth forecast, and Korea, with its export-oriented structure and particular vulnerability to changes in the external environment, will not be an exception." He pointed out, "Tariff hikes by major countries have both direct and indirect negative effects on Korea's exports."

Politically, he noted that while the situation has gradually stabilized with the presidential election schedule set after the Constitutional Court's impeachment decision, it is undeniable that the heightened political uncertainty since the declaration of martial law at the end of last year has further exacerbated the challenges caused by changes in the external environment. Governor Rhee stated, "Nevertheless, just as the saying goes, 'After the rain, the ground hardens,' the recent political events have served as an opportunity to reaffirm the resilience of Korean democracy." He emphasized, "It is true that there have been moments of conflict and confrontation due to political differences, but we have respected constitutional procedures and peaceful solutions, and are now moving forward to the next stage of electing a new president."

He also underscored the importance of the strong Korea-US alliance. Governor Rhee said, "Even amid complex geopolitical tensions and trade conflicts, I am confident that the steadfast Korea-US relationship will advance to an even higher level."