MPC Members Will Not Require a Recommendation from Private Sectors

The Ministry of Finance and Economy (MOFE) decided to accept demands from the Bank of Korea (BOK), thereby strengthening the bank‘s independency.

“The Ministry is willing to accept the BOK`s request for more autonomy”, said a high-ranking official at MOFE and went further to say yesterday that “the BOK is expected to present the bill to the National Assembly within this month.”

The BOK`s independence issue has brought about controversy since March this year when legislators presented a bill on the bank`s reform. The bill proposed: to forbid the current system on appointing Monetary Policy Committee (MPC) members which required a civic groups‘ recommendation, to grant the BOK authority to exclusively oversee financial institutions, and to abolish the MOFE`s preview and approval system on the bank‘s budget planning, etc.

Lee Sung-tae, Deputy Governor of BOK, attended a judicial meeting on June 19, held by Finance and Economy Committee of the National Assembly to discuss reforming the law on the Bank of Korea. At the meeting Deputy Governor Lee, reiterating the necessity for reform, revealed that “there have been cases before in which the MOFE exerted pressured in the BOK`s call rate adjustment even after the 1998 revision of the BOK laws.”

So far the MOFE has maintained its strong stance in saying that further revision of the law was not necessary to give discretion to the BOK, but recent signs of rising tensions between the two organizations finally changed the Ministry‘s attitude towards compromise.

A high-ranking official at the MOFE said, “The Ministry will abolish its pre-approval system on BOK‘s budget planning, but the bank will still need to be inspected by an objective organ. Regarding recommendations by a civic group, we will respect the bank`s perspective.”

He also added, “On granting the bank with exclusive oversight authority over financial institutions, however, we`ll try to find a better way to empower the BOK since the bank`s request, if accepted, is likely to entail adverse effects, such as burdening financial institutions.”

This possibly implies a bumpy road ahead unless the Bank of Korea withdraws from its demand for exclusive oversight authority. In the meantime, the Ministry of Finance and Economy plans to propose a joint hike to the Bank of Korea in early July as a reconciliatory gesture. The MOFE and the BOK have been at odds with each other since 1998 over the BOK`s independence issue. The two institutions haven`t even shared talks nor official data, which finally induced pressure from the public for failing to coordinate a swift response to the late-1997 financial crisis. The two finally went forward jointly for reconciliation in February 1999.

Kwang-Am Cheon iam@donga.com