[2020 National Audit] Ruling Party's Fiscal Rules Under Crossfire Again... Lee Ju-yeol "Active Fiscal Policy Needed Now" (Summary)

October 16 Bank of Korea National Audit
Ruling Party Criticizes Call for 'Strict Fiscal Rules'... Governor Lee Says "Active Fiscal Policy Needed Now"

Lee Ju-yeol, Governor of the Bank of Korea, attended the audit of the Bank of Korea at the Planning and Finance Committee meeting held at the National Assembly on the 16th, receiving a report from Bank of Korea officials before the audit began. Photo by Yoon Dong-ju doso7@

[Asia Economy Reporters Eunbyul Kim and Sehee Jang] During the National Assembly's Public Accounts Committee hearing on the 16th, the ruling Democratic Party of Korea strongly criticized Bank of Korea Governor Lee Ju-yeol's remarks calling for strict fiscal rules.

Democratic Party lawmaker Yang Kyung-sook pointed out, "It is a sensitive situation as the introduction of fiscal rules is being discussed, yet even the governor of the independent Bank of Korea is pouring fuel on the controversy."

Lawmaker Yang criticized, "During the serious period of the COVID-19 pandemic, the Bank of Korea has failed to fulfill its primary role properly and has not proposed any alternatives, instead interfering with government policies." She added, "We need to proactively implement expansionary fiscal policies to overcome the economic recession, even if it means incurring debt."

Earlier, Governor Lee stated regarding the fiscal rules recently prepared by the government, "Strict fiscal rules are necessary to maintain long-term fiscal soundness."

Fellow party member Park Hong-geun also pointed out, "The International Monetary Fund (IMF) recommended temporarily suspending the application of fiscal rules when necessary," and added, "The central bank needs to enhance its role while observing global trends." In response, Governor Lee said, "My previous remarks on fiscal rules are essentially consistent with the IMF's assessment."

The IMF stated on the 13th (local time) that while providing all necessary policy support during a prolonged crisis, it is also important to secure fiscal capacity in preparation for future increases in fiscal spending.

Governor Lee said, "I did not say that fiscal rules must be strictly enforced unconditionally." He continued, "In the current situation, active fiscal policy is more necessary than ever. In such circumstances, strict austerity should not be pursued, but strict rules should be introduced during normal times after the crisis."

Regarding the factors behind the increase in the United States' potential growth rate, he said, "The biggest factor is the removal of regulations, which has improved corporate productivity."

He added, "It is difficult to make definitive statements as many factors affect changes in potential growth rates, but general research results indicate that the increase in the U.S. potential growth rate is due to enhanced productivity resulting from support for various creative activities of companies."

Currently, the Bank of Korea is conducting a re-estimation of the potential growth rate reflecting economic structural changes caused by COVID-19. Before the COVID-19 outbreak, Korea's potential growth rate was estimated at 2.5%.

The Bank of Korea cited the following as causes for the decline in Korea's growth rate since the financial crisis: ▲population aging ▲investment sluggishness due to increased uncertainty ▲maturation of key industries.

Meanwhile, as criticism of the Bank of Korea's role continued, Governor Lee responded, "I believe the central bank's role should be expanded in accordance with changes in the economic environment going forward."

This content was produced with the assistance of AI translation services.