Rhee Changyong: "Expectations for Government's Role Should Be Adjusted... Indirect Support Needed Through Risk-Sharing with Private Sector"

Keynote Address at the IMF Asia 2050 Conference
Investing in Structural Reforms to Address Social Issues Such as Pension Reform Is Also Essential

On March 5, Bank of Korea Governor Rhee Changyong stated that as Asia faces global economic changes such as the restructuring of globalization, a return to industrial policies in advanced economies, and structural transformations in manufacturing, expectations for the government’s role in industrial policy should be recalibrated. He emphasized that support should shift to an indirect model, where risks are shared with private financial institutions.

Delivering his keynote address at the International Monetary Fund’s “Asia 2050 Conference” held in Thailand on the same day, Governor Rhee remarked, “Just as advanced economies have redefined the government’s role in response to changing circumstances, it is now time for Asian countries to readjust their expectations of government involvement to suit this new environment.”

He cited several recent global economic trends: the reorganization of global supply chains based more on geopolitical considerations than economic logic; the pursuit of manufacturing self-sufficiency by advanced economies, which have traditionally been the main export markets for Asian countries; and heightened uncertainty for Asian economies as the proliferation of AI and humanoid technologies drives down production costs.

Governor Rhee specifically pointed out that even for Korea, which stands at the forefront of global technology, the environment has changed: there are no longer advanced models to imitate, and it has become difficult for the government to guarantee the commercial success of specific industries. Referring to the fact that the proportion of domestic marginal firms has reached a record high of 17 percent over the past three years, he noted, “It is difficult for the government to cut off support midstream, even when performance is poor, due to concerns about political backlash.”

He also argued that, in addition to industrial policies supporting specific sectors, structural reforms should be employed in a complementary manner to reduce uncertainty across the broader economy. These remarks can be interpreted as suggestions for the current administration’s direct and concentrated support of advanced industries such as artificial intelligence.

Governor Rhee stressed, “Rather than having the government directly select companies, it would be more efficient to share risks with private finance according to project risk levels and to leave the selection of beneficiary companies to private financial institutions. This way, beneficiary companies will be unaware of government support, allowing private financial institutions to recover funds if performance is poor, thereby enhancing the efficiency of policy finance.”

He added, “Whereas industrial policy typically takes a vertical approach by directly supporting specific sectors, structural reform is a horizontal approach that reduces friction across the entire economy.”

Governor Rhee further asserted, “While nurturing strategic industries is undoubtedly a pillar of future growth, it is also critically important to invest in structural reforms to address aging, such as labor market flexibility, pension reform, and increasing the economic participation of women and older workers.”

He continued, “Looking only at the issue of marginal firms, it is structural reform—namely, the prompt exit of such firms from the market—that frees up resources to be redirected toward new industrial policy initiatives.”

He reiterated, “It has become harder for the government to guarantee the commercial success of specific industries,” and emphasized, “It is time for Asian countries to readjust their expectations regarding the government’s role in line with the new environment.”

Yonhap News

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