South Korean lawmakers of both the ruling and opposition parties’ latest attempt to amend the law to add the goal of maximum employment to the Bank of Korea’s mandate has been prompting divided response from onlookers as of Monday.
The related proposals submitted by lawmakers -- which came as Asia’s fourth-largest economy has been seeing record-high jobless rates -- would be reviewed by the National Assembly’s strategy and finance committee, starting Monday.
Unlike the US Federal Reserve, the Bank of Korea’s goals, under the current law, do not include maximum employment. Maximum employment does not translate into 100 percent employment, but asserts the central bank’s responsibility to maintain a level of employment that is likely in “normal economic conditions,” which is neither a boom nor recession.
Last week, main opposition People Power Party Rep. Ryu Sung-kull and ruling Democratic Party of Korea Rep. Koh Yong-jin jointly proposed a revision bill to add employment stability alongside the BOK’s existing goals of price stabilization and financial stability in execution of its monetary and credit policies.
The move was fueled by growing criticisms that the BOK has been taking an excessive “wait-and-see” stance in the face of an economic contraction caused by the COVID-19 pandemic, compared to the US Fed. The US Fed has pursued a series of unconventional monetary policy tools, including unlimited quantitative easing and purchasing individual corporate bonds, whereas previously it had been buying only exchange-traded funds.
Though the BOK, in the meantime, had regularly purchased local bonds in repo operations, to supply liquidity into the virus-hit market, critics have said the central bank was a step behind global counterparts and was taking excessively cautious steps.
As talks of a bill amendment came to light and criticisms of the BOK’s lack of moves to combat the virus risks grew, BOK Gov. Lee Ju-yeol said he would “seriously and actively consider the ‘changes’ in the central bank’s role” in a parliamentary audit last month. The remark, according to experts, hints that the BOK would be further cautious in dealing with the bill amendment, considering the current circumstances surrounding the job market here.
“If the goal of maximum employment is added to the mandate, then the BOK needs a more solid employment indicator, compared with the existing one,” said Kim So-young, an economics professor at Seoul National University.
“But the existing indexes are deemed hardly sufficient when compared with other indicators such as the gross domestic product indexes,” he added.
On top of it, most central banks that uphold maximum employment or have the “dual mandate” put stable prices and moderate long-term interest rates as their top priorities, another expert said.
“Central banks that put maximum employment as a priority mandate are only the US and Australia,” said Ha Joon-kyung, an economics professor at Hanyang University. While central banks in the UK and Argentina do mention it among their goals, it’s not a key mandate for them.
“It’s because of their unique labor environment, which is relatively flexible compared with other economies, and its unemployment rate, which is tied very closely to its economic development,” he added.
But at the same time, BOK critics like Rep. Ryu have been calling for changes in the BOK’s role, saying its policymaking is “stuck in the past” when the country was experiencing rapid economic growth.
If the bill is passed, it would be the first changes made to the BOK Act since September 2011, when it was added to Article 1 that the BOK “shall take heed of financial stability.” Local lawmakers have repeatedly failed in attempts to force the BOK to adopt the dual mandate, but this time, onlookers say the ruling and opposing parties’ rare cooperation may bring a wind of change.
By Jung Min-kyung (
mkjung@heraldcorp.com)
