Finance Minister Defends FX Intervention, Higher Growth

“Though the media has criticized my stance on foreign exchange policy, I still firmly believe that the government should proactively intervene in the foreign exchange market.”

“Lots of people are worried over rising inflation. But is it right to give priority to stabilizing prices when jobs are vanishing into thin air?”

“Some consider the revised supplementary budget as an artificial economic stimulus package. But what’s wrong with spending extra money? The government certainly has no intention of issuing government bonds.”

Strategy and Finance Minister Kang Man-soo yesterday gave his opinions on several economic topics in a news conference 15 days after he mentioned the government’s idea of forming “megabanks.”

High-ranking ministry officials rushed to finish the Q-and-A session due to worry that Kang would make more controversial remarks.

The minister, however, encouraged journalists to ask any question. After the 80-minute news conference, he visited the media room and spoke for an additional 20 minutes.

○ Kang blasts banks over commissions

Kang says the foreign exchange rate should contribute to the national interest and has encouraged more state intervention in the foreign exchange market.

Critics say he is trying to weaken the won since he does not care about inflation and instead emphasizes the current account balance and economic growth.

Kang told the news conference, “Some people argue that a higher foreign exchange rate has no significant impact on exports. Then I ask what impact does a decrease in the foreign exchange rate make.”

He implied that the government will tolerate a weaker won by saying, “Controlling the current account balance is the most important goal of the government’s macroeconomic policy.”

At a breakfast seminar yesterday, the minister criticized banks. “Banks have told smaller firms that the domestic currency will further appreciate and encouraged them to hedge foreign exchange risk, thus getting commissions.”

“Swindlers who mislead innocent market players by making bad use of their expertise and getting money out of it are much worse than speculative investors.”

Commercial banks hit back by saying many experts predict the Korean won will appreciate since Korean shipbuilders have received lots of orders. They said banks are originally meant to commissions by helping firms avoid foreign exchange risk.

Kang’s comments did have an effect on the foreign exchange market. A dollar exchanged for 993 won when the market opened yesterday, up 6.1 won from Monday. As Korean shipbuilders received large-scale orders and exporters sold dollars due to the surging exchange rate, the won rose to 989.5.

○ Kang favors revised supplementary budget

Certain experts said the revised supplementary budget will burden the economy through artificial boosts, but Kang supported the plan.

“It is not true that the government issues supplementary budget when it doesn’t have money in its coffers,” he said. “Is it right to save 15 trillion won and let the private sector contract? Do you mean you agree with the idea that the government will save 20 trillion to 30 trillion won next year regardless of economic conditions?”

This stance will probably put Kang at odds with the pro-government Grand National Party.

The party’s chief policy-maker and former economist Lee Hahn-koo opposes the supplementary budget, saying, “President Lee Myung-bak has never talked about the supplementary budget. Lawmakers believe that the government should boost the economy via tax cuts, not supplementary budget.”

○ Job creation and economic growth over stable inflation

The public has bickered over choosing stable prices and boosting economic growth. Kang says higher priority should go to economic growth through job creation instead of containing prices. He also says the economy has to tolerate inflation to a certain extent since recent price increases can be understood as cost-push inflation resulting from the soaring prices of oil and raw materials.

“We have to choose whether to lose jobs while struggling to stabilize prices or keep jobs while having less money to spend due to rising prices,” he said.

Regarding people against corporation tax cut while arguing, “Corporate tax cuts benefit large corporations exclusively," Kang said, "The principle of finance is to cut taxes for large corporations that pay a large amount of tax and helping those who cannot pay tax via a social welfare system. I think public sentiment is seriously distorted due to the logic behind politics.”

higgledy@donga.com larosa@donga.com