"Financial Services Commission and Financial Supervisory Service Restructuring Will Weaken Financial Policy Independence," Says Professor Koo Minkyo

Koo Minkyo, Professor at Seoul National University Graduate School of Public Administration
Assesses Lee Jaemyung Administration's Economic Ministry Reorganization Plan at National Assembly Forum
"Restructuring Driven by Redistribution of Authority Among Bureaucratic Organizations and Political Considerations"

On the 17th, participants are taking a commemorative photo at the National Assembly in Yeouido, Seoul, at the discussion hosted jointly by the People Power Party's Policy Committee, the Political Affairs Committee, and the Strategy and Finance Committee titled "Ministry of Economy and Finance and Financial Services Commission Organization Restructuring Plan Debate: Reform or Deterioration?" Photo by Yonhap News.

There are concerns that the government's plan to dismantle and separate agencies such as the Ministry of Economy and Finance, the Financial Services Commission, and the Financial Supervisory Service will simultaneously weaken the independence of financial policy and the stability of fiscal policy.

On September 17, Koo Minkyo, a professor at the Graduate School of Public Administration at Seoul National University, made this statement during a presentation titled "Assessment of the Lee Jaemyung Administration's Economic Ministry Reorganization Plan" at the "Ministry of Economy and Finance and Financial Services Commission Organization Restructuring Plan Discussion" hosted by the People Power Party at the National Assembly in Yeouido, Seoul.

The government is currently pursuing a reorganization plan that would split the Ministry of Economy and Finance into the Ministry of Planning and Budget and the Ministry of Finance and Economy, dissolve the Financial Services Commission and restructure it as the Financial Supervisory Commission, and separate the Financial Consumer Protection Agency from the Financial Supervisory Service.

Professor Koo assessed that this restructuring plan undermines the financial triangle system established after the 2008 global financial crisis. He explained, "At that time, the Financial Services Commission and the Financial Supervisory Service were made independent to address the problem of excessive concentration of fiscal and financial power in the Ministry of Economy and Finance, but even after that, the boundaries between financial policy and supervision remained unclear, and conflicts between agencies persisted."

He continued, "Under the new plan, the newly established Ministry of Finance and Economy will absorb financial industry policy, and the Financial Services Commission will be reorganized into the Financial Supervisory Commission. While this is being justified as a solution to existing conflicts, in reality, it mainly serves as compensation for the loss of budgetary authority." He added, "In this process, conflicts of interest among financial bureaucratic organizations are likely to intensify, and resistance within the Financial Supervisory Service as it transitions from a private entity to a public institution may further hinder institutional integration." As a result, he argued, "The independence of financial policy and the macroeconomic coordination function are more likely to be weakened."

From the perspective of fiscal policy, Professor Koo saw the situation as even more complex. He noted, "South Korea has long maintained sound public finances compared to other advanced countries, but the fiscal burden is accelerating due to the combination of increased welfare spending resulting from an aging population, expansionary fiscal policy to counter economic downturns, and increased defense spending."

He stated, "In this situation, if budgetary authority is transferred to the Ministry of Planning and Budget, the process of budget formulation and execution will become even more susceptible to political logic than before, making it difficult for the Ministry of Finance and Economy to function as the final safeguard of fiscal soundness."

Professor Koo concluded, "Overall, this government reorganization is more a result of the redistribution of authority among bureaucratic organizations and political considerations than a move to secure policy consistency or fiscal soundness." He emphasized, "However, the result may be a simultaneous weakening of the independence of financial policy and the stability of fiscal policy, and under the already high burdens of household, government, and public debt, it is highly likely to further increase uncertainty in the South Korean economy."

He also added, "Repeated organizational restructuring makes the way the civil service works more rigid and deprives it of opportunities to learn and improve through failure. Rather than fostering healthy competition and coordination among ministries, it encourages inertia and complacency, and organizations newly established under the name of 'control tower' often end up being redundant layers of bureaucracy."