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S. Korea to begin exit plans after private sector recovers: BOK head

All Headlines 02:44 April 25, 2010

By Hwang Doo-hyong

WASHINGTON, April 24 (Yonhap) -- South Korea should consider withdrawing its stimulus measures only after the private sector has recovered enough to support sustained economic development despite faster-than-expected global economic recovery, the head of the Bank of Korea has said.

"The key is whether the private sector has regained its self-supporting power," BOK Gov. Kim Choong-soo told South Korean correspondents based in Washington Friday. "We will have to opt to go to the direction that carries less risks after considering all the factors involved, as both of any hasty or too early implementation of exit plans will be problematic."

Kim is in Washintgon for a meeting of central bank chiefs of the G-20 advanced and developing economies set to open Saturday following a meeting of their finance ministers. Those meetings are to prepare for the fourth G-20 economic summit in Toronto, Canada, in June.

A joint communique issued at the end of the day-long ministerial meeting Friday, recognized the need for different policy responses, because the level of economic recovery in each country may vary.

The communique called on member countries which are "still highly dependent on policy support and consistent with sustainable public finances" to maintain the economic stimuli "until the recovery is firmly driven by the private sector and becomes more entrenched."

The BOK governor is echoing the remarks made by South Korean Finance Minister Yoon Jeung-hyun Thursday here that "It is premature for us to implement the exit strategies as there are concerns over possible oil and other raw materials price hikes and elements which can destabilize the international financial market."

Yoon said that the global economy is still being supported by government spending rather than the private sector.

The quarterly World Economic Outlook report, released Wednesday by the International Monetary Fund, advised most advanced economies to maintain a "supportive thrust" this year through expansionary fiscal and low-interest rate policies to further sustain growth and employment.

"Multispeed recoveries imply that policies will necessarily be tied to individual country circumstances," the IMF report said. "But there are spillovers when the timing of policy actions varies, and economies should take these into account in setting policies."

The IMF has projected South Korea's economy to expand 4.5 percent this year, citing robust exports, growing domestic demand and inflows of foreign investment. The BOK puts the figure at 5.0 percent.

BOK Gov. Kim said that the prime purpose of the central bank is to keep down inflationary pressure, but added, "It is desirable for the government and the central bank to go in harmony and cooperate closely."

He said he disliked the media depicting him as a "dove," who may prioritize the cooperation with the government rather than keeping the independence of the central bank.

Kim noted that officials at the Organization for Economic Cooperation and Development have often called him a "hawk" in monetary policy. Kim had served as South Korea's envoy to OECD before assuming the central bank post.

After taking office earlier this year, Kim said, "The Bank of Korea is part of the government when seen on a large framework," inviting criticism that he may undercut the BOK's independence.

On the concerns that household debt in South Korea is too high, compared with disposable income, Kim said that 87 percent of household debt is attributed to high income earners in South Korea, unlike in the United States where the subprime mortgage to low income earners has triggered the financial crisis in late 2008.

South Korea also has a low rate of debt repayment in arrear, he said, dismissing concerns that household debts may pose a hurdle to sustained economic recovery.

"I am not saying we have no problem in household debts," he said. "We need to respond to this with a variety of policy options. We will resort to micro economic policies first before moving to an interest rate hike or any other macroeconomic policy options."


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