[Inside Chodong] The So-Called 'Political' Remarks by the Bank of Korea Governor

"Expressing opinions on political issues can be misunderstood as political involvement." "Could it be that he has brought trouble upon himself by undermining neutrality and independence?"

On the 18th, during the plenary session of the National Assembly's Planning and Finance Committee, criticism was directed at Lee Chang-yong, Governor of the Bank of Korea. It was claimed that Governor Lee made 'political' remarks that shook the neutrality clause of the Bank of Korea stipulated in the Bank of Korea Act. This criticism has been repeated several times this year, and each time, Governor Lee drew a clear line by saying, "It was a very 'economic' message."

Bank of Korea Governor Lee Chang-yong (right in the photo) and First Vice Minister of Economy and Finance Kim Beom-seok are attending and conversing at the Planning and Finance Committee plenary meeting held at the National Assembly on the 18th.

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The controversy began right after Choi Sang-mok, Acting Prime Minister and Minister of Economy and Finance, appointed two Constitutional Court justices representing the National Assembly at the end of last year. Some cabinet members opposed Acting Prime Minister Choi's decision, and as voices calling for his impeachment emerged, Governor Lee sharply stated, "I hope people would think carefully before speaking." What did he mean? At that time, following the emergency martial law incident, international investors and the global community's concerns had extended beyond financial and foreign exchange market instability to worries about the stability of the national leadership. International credit rating agencies were closely monitoring the impact of South Korea's political situation on the country's credit rating. Governor Lee saw the most important external message at this point as "political instability is being resolved, our economic system operates independently, and the Korean economy is strong."

The intent of his remarks was made clearer in his New Year's address on the same day. "If political conflicts persist and cause a governance vacuum, it could negatively affect external credibility and indirectly or directly shock the overall economy, so it is crucial that the national command center remains stable. Credit ratings are hard to raise, but once downgraded, they are difficult to recover. To minimize the negative impact of political uncertainty, it is necessary to build trust that the economic system, including monetary policy, operates independently and normally without being influenced by political processes." In essence, even if one criticizes Acting Prime Minister Choi's decision, they should do so with an awareness of the weight of external trust and the potential damage to our economy. Governor Lee later said that his remarks were "a core economic issue." However, this was criticized as a "political statement by the central bank governor regarding the appointment of Constitutional Court justices."

At the press conference following the Monetary Policy Committee's base rate decision on the 16th of last month, Governor Lee once again faced backlash for 'political remarks' when he specifically addressed the need for and appropriate scale of a supplementary budget. The Bank of Korea analyzed that out of the 0.4 percentage point difference between the fourth quarter growth forecast (0.5%) and the actual growth rate (0.1%, preliminary), 0.2 percentage points were due to domestic demand weakness caused by political uncertainty such as emergency martial law. Governor Lee believed that in the context of successive downward revisions of Korea's economic growth forecast, a supplementary budget of 15 to 20 trillion won was necessary to compensate for the unexpected 0.2%. He also said that the sooner it was enacted, the better, as it would be immediately reflected in economic forecasts and demonstrate the economy's fundamental strength beyond concerns. This led to a visit by lawmakers from the People Power Party to the Bank of Korea on the 22nd of last month, the week after the base rate decision. They questioned whether Governor Lee's remarks on the need for a supplementary budget were an "overreach demanding fiscal expansion."

Back at the Planning and Finance Committee's plenary session on the 18th, Governor Lee reaffirmed his position but, viewed from the perspective of his previous 'political remarks,' this too was considered a 'problematic statement.' Regarding the supplementary budget, he saw 15 to 20 trillion won as appropriate, but was negative about a 35 trillion won budget proposed by the Democratic Party, noting that if such a large budget was not followed by further spending the next year, it could have a negative effect on growth. The same applied to the Democratic Party's proposal for universal livelihood recovery support payments. He said that distributing cash is a method used when electronic systems are not well established, and fiscal support through supplementary budgets should focus more effectively on small business owners and self-employed individuals currently facing difficulties.

Are Governor Lee's remarks political, siding with one party, or purely economic? In a situation where a country's politics and economy are closely intertwined and interact, it is worth considering whether a central bank governor should remain silent even when economic significance is large but political interpretations are possible, in order to uphold their fundamental duty.

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