Korea should seek more trade agreements: Bahk

Finance minister discusses major economic issues in interview with The Korea Herald

The following are excerpts from the interview with Finance Minister Bahk Jae-wan. ― Ed. 


Korea Herald: How meaningful is the Korea-U.S. FTA?

Bahk: Korea’s relationship with the United States has gone through many ups and downs but the deal essentially is a major turning point in that it isn’t just about lowering taxes for more trade benefits. The effectuation of the trade pact should become an opportunity for Korea to upgrade the way it does business here. The pact should also be regarded as a “third opening” in the bilateral relationship, one that we should all strive to utilize as a challenge and take the experience to improve our fundamentals.

KH: How important is Korea-China FTA?

Bahk: More countries want to stitch FTAs of late as the deal brings trade advantages and creates win-win situations for both parties. Going against the trend will put us at a disadvantage. For instance, Korea and Taiwan have been competing to seal bilateral trade agreements with China and Korea is now at a comparative disadvantage compared to Taiwan, which has signed the Closer Economic Partnership Agreement with China. We will be left behind unless we move forward in seeking better deals. 

China and Japan are our regional neighbors so the potential for economic cooperation is huge. The intra-trade volume among Korea, China and Japan is not even half of that among the eurozone countries. While almost two-thirds of trade in Europe happens within Europe, less than one-third of the trade volume in Northeast Asia comes from the region. Intra-regional trade is not fully utilized in Northeast Asia. It is a complicated issue when you take an item-by-item approach, but the issue as a whole is a pressing one that needs to be pushed forward urgently.

KH: What are the key agenda you have pushed for since taking the office as Korea’s Finance Minister?

Bahk: I’d say that although we are still in a recovery mode, the Korean economy is faring relatively well in the face of the European debt crisis and other external risks. We extended a currency swap deal with China and Japan, but even if we don’t mention such deals, our macro-prudential measures have improved and volatility stemming from uncertainties has subsided significantly.

KH: Do you see anything you could have done better?

Bahk: There has long been a debate about “MBnomics” (the economic policy of President Lee Myung-bak). While the debate itself stayed constructive, I wish I had done a better job explaining the policies through the press and soothing political divisions over the issue. That may have led to a more rational and mature set of discussions.

KH: How are you leading the Finance Ministry’s relations with the Bank of Korea?

Bahk: It wouldn’t be appropriate to cite detailed cases in which we (the Finance Ministry) cooperate with the BOK, but I think it would be a waste not to share the work of the country’s best brains. It is desirable for both to share data and seek ways for cross fertilization. There might also be synergies coming from peer pressure too. The interest rate-setting bodies of the U.S. and the U.K. have also been closely cooperating with their government since 2008. There will be more benefits from the close cooperation between the two agencies in an open-minded manner without considering power hierarchy.

There was some tension between the two over interest rates in the past. I feel also tempted to intervene, at times, seeking a higher economic growth rate during my tenure, but one should not set policies in a way that makes people pay extra costs later. One should stay far away from political agenda and try to pursue a neutral position.

KH: There are concerns about inflation and oil prices pressuring the domestic economy.

Bahk: Oil prices have risen about 20 percent since the end of last year. The rise is feared to have a far-reaching impact on the entire economy. I am concerned about price volatilities of goods that are tightly linked to oil prices. Our analysis shows that the effect of oil price movement on finished goods has diminished over the years, and it is a relief. But because Korea relies so much on imports, runaway oil prices remain the economy’s Achilles’ heel.

The biggest threat to the Korean economy at this point is oil prices. Back in December last year, I was concerned about the eurozone debt crisis and Europe’s deleveraging risks. Now, there are fewer risks from the eurozone. I initially doubted that oil prices would hit $110 (per barrel), but was surprised to see that it surged to $123.

By Cynthia J. Kim and Yang Sung-jin
(cynthiak@heraldcorp.com) (insight@heraldcorp.com)