Kim Yong-beom, the Blue House Policy Director, stated that the current high interest rates, inflation, and exchange rates are the “costs of success” inevitably associated with Korea’s economic leap to a new level. He emphasized that these challenges are not signs of a crisis but rather the friction of an upward move. Amid growing concerns about what’s known as the “three highs,” he stressed the need for a shift in perception regarding the economy.
On May 24, through Facebook, Director Kim argued that this year, the Korean economy is entering a phase where the nominal growth rate, including inflation, is approaching 10%. He noted that the explosion of corporate performances in the semiconductor and AI sectors improved trading conditions and raised export prices, creating a trend where corporate profits, wages, and asset prices rise simultaneously. He added that household income is increasing, tax revenues are expanding, and the national debt ratio is naturally decreasing, indicating a virtuous cycle.
Regarding the highest-ever Q1 export performance of $219.9 billion amid mixed economic conditions like the three highs, Kim said, “The source of the confusion is not the economy itself, but the framework through which we view it.” He emphasized that the general upward adjustment in the price system is not negative in itself, but rather that the Korean economy is seeking a new equilibrium after being accustomed to long-term low growth and low inflation. “If you try to decode a new era with the grammar of the past, you will miss things and respond incorrectly,” he added.
As for the weak won, Director Kim pointed out that it is not due to a shortage of foreign currency like during the financial crisis. Instead, he identified the rise in the valuation of domestic stocks held by foreigners, from 1,300 trillion won ($1.1 trillion) to 2,600 trillion won ($2.2 trillion), due to the KOSPI surge as the cause. He explained that the unprecedented selling by foreigners, exceeding 110 trillion won this year, occurred as they recovered some of their significant valuation gains, which increased the demand for forex conversion and pushed up the exchange rates. He referred to this as “a paradoxical phenomenon created by the success of the Korean economy.” However, he noted that they will actively manage excessive swings and volatility in the exchange rates.
For the causes of high interest rates, he mentioned concerns about global inflation due to oil price spikes, the potential tightening of monetary policies in major countries, and expectations of interest rate hikes due to upward revisions of growth and inflation forecasts. Kim said, “Given the overall rise in the price system, it is challenging for rates to stabilize quickly as they did in the past.” He emphasized that it is not the level of rates per se that matters but the speed and volatility of their increase. He added, “What is needed now is ensuring market rates do not excessively get ahead of the economic fundamentals while preventing shocks from concentrating on vulnerable sectors.”
For the reasons behind high inflation, he pointed to the comprehensive cost increases in energy, food, and logistics due to the Middle Eastern conflict. Kim stated, “Inflation stemming from supply shocks is difficult to control with monetary policy alone and cannot be resolved quickly.” He called for extraordinary measures, using all available policy tools, such as stabilizing energy prices. He further asserted that relying solely on market functions to address inflation is insufficient and forewarned of strong market interventions.
Director Kim reiterated a firm intervention stance regarding the real estate market. He warned, “Real estate is an area where the government must respond most decisively,” and cautioned that if capital concentrates in high-priced real estate, it could destabilize Korea’s new phase of economic advancement. Kim continued by stating that while increasing supply is necessary, it is not sufficient on its own, and structural demand management measures that curb speculative demand and capital concentration in real estate must parallel supply policies.