May 8, 2012
“With a strong sense of duty, the BOK will play its fresh role in preventing a systemic risk amid a more complicated linkage between real economy and financial system,”
-Bank of Korea governor Kim Choong-soo in an interview to Xinhua
These days, central bankers across the world are often losing sleep. With increased uncertainty and volatily in the financial markets they are looking over their shoulders for the next challenge to pop up. And not surprisingly, the central banking warriors are pleading their governments to hand them more weapons. Some have even succesfully persuaded their governments to give them new powers. In the aftermath of the 2008 crisis, Kim Choong-soo, the Governor of Bank of Korea, is one among the newly empowered central bankers.
Although the 64-year old Seoul native took the helm at South Korea’s central bank in 2010, his central banking views were shaped by the profound crisis just two years earlier. He was a witness to the contagion that spread from the small corner of U.S. housing market into a credit debacle capable of wiping away the foundation of the world’s financial system. Kim Choong-soo also observed the enormous power with which Ben Bernanke, the Governor of U.S. Federal Reserve, dealt with the financial meltdown in 2008.
“Kim is famous for his reasonable and international manner in dealing
-Chun Chong Woo, an economist with Samsung Securities Co
in an interview to Bloomberg
Thankfully right now, Kim Choong-soo’s South Korea is not facing any challenge comparable to that witnessed in 2008 . But the proactive governor is taking no chances. Korea’s central bank has for long had just one mandate: to target inflation. But household and corporate debt in the export powerhouse has been ballooning for some years. The combined government, household and corporate debt in South Korea touched almost 306% of the country’s GDP during 2010, a bit higher than the average debt for many advanced economies. While the South Korean government has been prudent enough to keep its debt low, the country’s household and corporate debt as a percentage of GDP has been at least 20 percentage points higher than the average in developed nations. Worried about such high debt, Kim Choong-soo persistently lobbied the government and won the added mandate to secure financial stability and regulate systemic risk. Now the ball is in the central bank’s court and it will likely assume the sole responsibility for any crisis in the future.
As it turns out, Kim Choong-soo is no stranger to such difficult roles. In fact, he climbed to his current position as the guardian of South Korea’s monetary policy by setting tough targets for himself and living up to them. It all started when Kim Choong-soo completed his undegraduate degree in economics from the Seoul National University, and then traveled to the U.S. to complete his Ph.D in economics from the University of Pennsylvania in the late 1970’s. After a brief stint as a research associate in the U.S., Kim Choong-soo returned back to Seoul to work for the government. For almost a decade, Kim Choong-soo served in the government-backed Korea Development Institute. It was there that Kim made a name for himself through his research in macroeconomics, manpower and social welfare policies. In the early 1990s, Kim was appointed Secretary to the President for economic affairs.
As the 1990s bloomed, it was a golden time for the South Korean economy and Kim Choong-soo. Rapid economic growth through the decades catapulted South Korean living standards towards those experienced in developed countries. Recognizing the South Korean achievement, the Paris-based Organisation for Economic Co-operation and Development (OECD), termed the ‘rich country club’ by The Economist magazine, extended its membership to South Korea in 1996. Kim Choong-soo not only was in charge of South Korea’s accession negotitations with the OECD, but also served as the Minister and Head of the OECD Office at the Korean Embassy in Paris.
And then the Asian Financial storm hit in 1997. As the country searched for a capable statesman with international experience to negotiate with the IMF for rescue funds, Kim Choong-soo volunteered again. Ten years later, when Lee Myung-bak, nicknamed the ‘bulldozer’, swept the South Korean presidential elections, he appointed Kim Choong-soo as his senior secretary for economic affairs. Sadly, that tenure was short-lived as Kim Choong-soo was forced to resign only after four months due to anti-government protests over allowing U.S. beef imports. He was called back to government services by Lee Myung-bak in 2010, this time to take on the huge responsibility of heading the central bank.
Kim Choong-soo wasted no time in taking up the offer to set the monetary policy of South Korea. Although it was 2010 and the worst of the financial meltdown of 2008 had passed, new uncertainties stemming from the European sovereign debt crisis were shaking the global financial markets. In the meantime, with the recovery gathering steam in many export-oriented economies including South Korea, inflation was rearing its ugly head by mid-2010.
Since 2010, Kim Choong-soo has largely opted for a gradual tightening of monetary expansion. Until now, he has raised interest rates only incrementally, or by ‘baby steps’ in his own words. But since Kim’s tenure at the central bank, inflation has mostly remained near the upper limit of the bank’s target of 4%. Inflation even breached the 4% level for many months in 2011. All this has drawn an unprecendented amount of criticism upon both the Bank of Korea and Kim Choong-soo. Some have even blamed Kim Choong-soo’s loyalty to the country’s president Lee Myung-bak as a reason for not raising the interest rates quickly enough.
That leaves a huge amount of unfinished business for Kim Choong-soo, whose term will end in 2014. Since 2010, the pre-emptive central banker has presided over a export-oriented recovery in South Korea thanks to Korea’s weak currency, the won. But most likely, his legacy will largely be determined by the way he can control inflation during the remaining part of his term.
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