Yoon Je Cho, KOR Monetary Policy Committee Member: "Monetary Policy Is a Blunt Tool... Fiscal Role Must Be Strengthened"

Prime Minister Chung Sye-kyun's First Thursday Dialogue of the New Year

"Prolonged Use of Monetary Policy Causes Asset Price Increases"
"Fiscal Role Must Be Strengthened to Enhance Income Redistribution"
"Disaster Relief Payments Require Selective Support for Severely Affected Companies"
"Korea's GDP Expected to Recover to Pre-COVID Levels by Q2"

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] Jo Yoon-je, a member of the Monetary Policy Committee of the Bank of Korea, stated on the 7th, "Compared to fiscal policy, monetary and financial policies are considerably blunt," and added, "The role of fiscal policy should be strengthened to enhance income redistribution functions." Jo has been serving as a member of the Monetary Policy Committee since April last year.

Jo attended the Thursday Dialogue held at the Prime Minister's Official Residence in Jongno-gu, Seoul, and when asked about measures to alleviate income inequality, he said, "I believe the fiscal role should be strengthened to expand the income redistribution function," adding, "The COVID-19 pandemic has made the social safety net role more important, and since structural changes may reduce employment opportunities in the future, it is necessary to redistribute income through government fiscal roles."

He continued, "Monetary and financial policies play a very effective role in maintaining financial stability during crises, but if used excessively and for prolonged periods, they cause asset price increases." This pointed to the necessity of monetary and financial policies to stabilize financial markets shaken during the early spread of COVID-19, but also highlighted the side effects of rapid rises in stock and real estate prices due to prolonged continuation. Recently, minutes from the Monetary Policy Committee also showed members expressing concerns about asset price concentration in real estate and other areas due to low interest rates.

He noted, "In the case of the United States, statistics show that the top 1% hold 50% of stocks, and the top 10% hold 84% of stocks," adding, "The bottom 50% often hold almost no stocks, and the same applies to real estate."

Jo also emphasized the need to provide digital education to the elderly and small business owners to reduce the digital divide during the structural transition to a digital economy in the long term. He said, "Traditional markets and small business owners can create new demand by applying business methods utilizing digital technology."

He also mentioned that there is demand to purchase expensive housing in Gangnam, Seoul, for children's education, but if good lectures can be accessed online, it could prevent opportunities for children from decreasing due to parental income disparities. He said, "The government could consider providing free online education, such as online education vouchers for low-income groups," adding, "Recently, social stratification has become a problem, but expanding social mobility through education could enhance the dynamism of our society."

Regarding the COVID-19 disaster relief payments, he expressed the opinion that selective support for severely affected companies and small business owners would be more effective for economic recovery. He said, "It is the role of the state to share the burden of industries or companies suffering damage regardless of crisis factors," adding, "Although it depends on value judgments, if administrative capacity and digital capabilities can finely distinguish the scale of damage, focusing support on affected companies is an efficient way to use fiscal resources." This means using fiscal resources efficiently while selectively supporting affected industries to maintain potential growth rates and create a foundation for faster recovery once the crisis ends.

Meanwhile, Jo predicted that South Korea's Gross Domestic Product (GDP) could recover to pre-COVID-19 levels (the level of the fourth quarter of last year) in the second quarter of this year. However, he noted, "Due to private debt and employment shocks, consumption recovery could be very slow, so we need to consider what proper recovery means."

As future policy tasks, he listed ▲ early exit from COVID-19 ▲ support for self-employed and small business owners affected during quarantine processes ▲ how to achieve a soft landing amid increasing debt and worsening fiscal indicators ▲ preparation for industrial structural changes after COVID-19.

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