“Importance of Central Bank Independence… Need to be as Realistic as Politicians”
Lee Chang-yong, Governor of the Bank of Korea, stated that he couldn’t remain silent as a central banker after advocating for a supplementary budget following the martial law situation.
On the 21st (local time) in New York, where he received a medal from the Foreign Policy Association (FPA), Governor Lee remarked during a dinner speech, “If the supplementary budget proposal is passed in a bipartisan manner, it would send a message to international investors that Korea’s economic policies are managed stably, unaffected by political situations. This would be the most effective means to maintain the nation’s credit rating.”
Governor Lee reflected that mentioning financial stimulus amidst the opposing views of the two main parties on fiscal policy could have seemed politically biased. Nevertheless, he spoke out because “domestic demand was contracting faster than expected following the martial law situation,” and he believed “some degree of supplementary budget was necessary alongside a rate cut.” He added, “While central bankers must maintain political neutrality, sometimes economists need to be as realistic as politicians, as Keynes said about his mentor Marshall.”
He also emphasized the importance of securing the political independence of the central bank. “Amid the recent political challenges, it’s crucial for the central bank to be independent not only from the government but also from politics itself,” he stated. He praised the Bank of Korea for delivering balanced and politically unbiased assessments on politically sensitive issues like the impact of martial law on the economy and exchange rates, and for providing objective policy directions at crucial times.
Regarding domestic political uncertainty, he noted, “The political uncertainty, which heightened after the declaration of martial law at the end of last year, has exacerbated the challenges arising from changes in the external environment.” On the global economic uncertainties, he stated, “Our export-oriented economy is particularly vulnerable to changes in the external environment.” He added, “Tariff increases by major countries negatively impact our exports directly and indirectly, and it could significantly affect export goods produced by our companies overseas.”
Meanwhile, the medal awarded by the U.S. non-profit organization, the Foreign Policy Association, is described by the Bank of Korea as a prestigious award given to individuals who have shown responsible global leadership and had a positive impact on the international community. Past recipients include Jean-Claude Trichet, former President of the European Central Bank (ECB); Paul Volcker, former Chairman of the U.S. Federal Reserve; Kristalina Georgieva, Managing Director of the IMF; and John Williams, President of the Federal Reserve Bank of New York.