South Korea CBG looks to bridge international gaps

The Bank of Korea (BOK) is going global. With one eye on the concerns of South Korea’s domestic economy, the BOK governor Choongsoo Kim is also focused on reaching out to the international community. He is active at a regional level and as well as engaging with foreign institutions, and he aims to bring global practices home to the central bank, in a bid to make the BOK “global”. 

Mr Kim explains that when the global financial crisis broke out, the world was divided into two groups: advanced and emerging economies. South Korea, he says, lies on the threshold, and although the International Monetary Fund (IMF) classifies the country as 'advanced industrialised', he considers it to be situated somewhere between the two categories. “I don’t call Korea an advanced economy yet, but we are moving from the state of emerging to the state of an advanced economy,” says Mr Kim. 

Building bridges

This puts South Korea in a unique position at international meetings of the G-20 major economies or the Bank for International Settlements (BIS), for example. “We can play a bridge role,” he says, in communicating the view of the emerging economies to the more advanced economies. “I have done my best to play such a role at the G-20 and BIS and the other international forums,” he adds. 

Mr Kim is active at a regional level and has been the chair of the Asian Consultative Council (ACC) of the BIS since October 2012. The ACC comprises central bank governors in the Asia-Pacific region and represents their interests to the board and management of the BIS. 

He was also the co-chair of the Financial Stability Board’s regional consultative group for Asia and has chaired other central bankers’ associations, such as the Executives’ Meeting of East Asia-Pacific Central Banks and the South East Asian Central Banks. 

“I am very active in communicating with other central bankers. Furthermore, since I became governor I have initiated memoranda of understanding [MOUs] with other central banks,” he says. These agreements include MOUs with the central banks of Mongolia, Pakistan, Thailand, the United Arab Emirates and Colombia. 

Bringing it all back home

As well as reaching out to his international counterparts, Mr Kim is also focused on bringing international practices to the South Korean central bank itself. “To make the global norm a practice internally, that is the way to globalise the institution,” he says. In pursuing these goals, he explains that his catchphrase and slogan is “global BOK”. 

“I sent several of my staff to other central banks,” says Mr Kim, explaining there are 13 staff members on secondment at institutions that include the Bank of England, the European Central Bank, the Bundesbank and the Federal Reserve Bank of Boston. 

“Before I came here, the Bank of Korea had never done collaborative research with international organisations,” he says. The first project began in 2010 – the year Mr Kim became governor – and now there are several collaborative projects under way. Last year there were 20 projects, several of which produced working papers with organisations such as the IMF and the Organisation for Economic Co-operation and Development. 

And while the BOK is becoming more international, South Korea as a country is also coming under more of a global influence. In recent years, South Korea has become more open to foreigners, which has been in part driven by its need to cope with a rapidly declining fertility rate. One of the major challenges that South Korea faces is its rapidly ageing society, which is occurring at a faster rate than in Japan. Mr Kim points to the efforts of the government to address the issue, for example, by providing childcare support. “At the same time, [we need to] think a little harder and revise our immigration policies,” he says. 

The US, Europe and Japan have their own models for dealing with the same problem. “We all face different institutional legacies, but I think it is important to open up the economy. But of course saying is easy and doing is a little more difficult,” says Mr Kim. 

He points to the increasing presence of foreigners in South Korea, with a number of international marriages in rural areas between South Korean men and women from other countries, such as China, the Philippines and Vietnam. 

Domestic issues

South Korea is also opening up in other ways, and 2012 the country elected Jasmine Lee as its first Filipino-born member of parliament. Other women have become notable, as the country now has a female president, and closer to home at the BOK, the first female deputy governor was appointed in July 2013.

Such an appointment could be viewed as one of the ways in which international practices have been brought to South Korea’s central bank. And while the motto for the governor is to have a “global BOK”, he also has pressing issues within the domestic economy to deal with. 

These days, Mr Kim, like many other central bank governors in Asia, is concerned about the effects of the tapering of the US’s quantitative easing programme. “Tapering may incur certain problems, but tapering assumes the economic recovery of the US so overall I think the benefit will be greater than the cost,” he says. 

He explains that in the context of the global economy, South Korea is affected most by the US economy. “The US is our single most important economy. In terms of trade, China is currently our number one trading partner. About 25% of our exports go to China and about 10% goes to the US. But there are some indirect effects that are coming from the US economy, because South Korea is exporting to almost all economies of the world. So if I combine both the direct and indirect effects, the US economy is the most important [to South Korea],” he says. 

Abenomics impact

Closer to home, in Japan, it is not the tapering of quantitative easing that is the issue most worrying for Mr Kim, but rather the expansionary policy of the Bank of Japan and its ‘Abenomics’ policies. 

“The Korean economy might have been affected most by Abenomics, but the pace of currency depreciation of the Japanese yen turned out to be a little bit slower than expected,” he says. 

Mr Kim notes that there were certain sectors – the automobile and steel industries – that were affected by the yen’s depreciation against the won. “Other than the impacts on the manufacturing sectors, the service sector – such as tourism – was also greatly affected. During the first half of this year, when compared with the first half of 2012, the number of Japanese tourists to Korea reduced by 26%,” he says. 

Mr Kim adds, however, that the impact was not as substantial as initially anticipated. While the price of South Korean goods and services is important, he says, “Korea’s non-price competitiveness for many industries has improved – that is why the impact on Korea turned out to be smaller.” 

When asked if he is worried about the strengthening won, Mr Kim says: “I don’t want to use the term ‘worrying’, but I am of course concerned.” He explains that the impact of the depreciation of the yen will take time to manifest itself and some companies will benefit because they are importing parts from Japan. In certain industries, which are exporting goods, Mr Kim says: “If many of the intermediate goods or the components of products are imported from Japan, they are disadvantaged by the depreciation of the yen, but at the same time they are advantaged by the decreases in the prices of their intermediate goods imports.

“I cannot say that there is just a one-sided impact on the industry – there are certain types of mixed impacts. And so we have to sort out these impacts a little more in detail.” 

And in terms of home-grown concerns, South Korea still has a high level of household debt, which poses a risk to the economy. “There is no easy solution to solve the household debt,” says Mr Kim, who argues that reducing the level of household debt too quickly will reduce the aggregate demand of the economy. For now, the focus is on containing the growth of the household debt to be limited to the growth in South Korea’s nominal gross domestic product, he says.