ID :
189657
Mon, 06/20/2011 - 02:22
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https://oananews.org//node/189657
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For sustainable growth
(EDITORIAL from the Korea Times on June 20)
(Yonhap) - Economists often say that it is important to take preemptive action to fight inflation or deflation. The reason is that authorities should adopt a prompt and appropriate monetary policy in order to produce intended effects at a proper time. For example, if the central bank raises or cuts interest rates, it would usually take three to six months to see the rate action work in reality.
The Bank of Korea (BOK) hiked its key policy rate by a quarter percentage points to 3.25 percent on June 10 to rein in mounting inflationary pressure. But the central bank is under criticism that it has been too slow to take preemptive action to ensure price stability. BOK Governor Kim Choong-soo should get the blame for pandering to the Lee Myung-bak administration???s growth-oriented economic policy.
Now, Kim and other policymakers are required to humbly accept recommendations by the International Monetary Fund (IMF) for monetary tightening. After a two-week annual policy consultation, an IMF delegation pointed out Friday that the central bank has much room to tighten its monetary policy that should be engineered to introduce a soft landing of the nation???s economy.
The IMF team noted that monetary conditions remain ???loose.??? It hit the nail on the head as the BOK still keeps the interest rate too low, given that the consumer price index (CPI) stayed above 4 percent for the fifth consecutive month in May. The figure has exceeded the BOK???s inflation target of around 3.5 percent.
In many respects, the central bank has maintained a misguided monetary policy in an apparent move to boost the economy and increase exports. Central bankers and President Lee???s economic staff should realize that the artificially low rate policy could do more harm than good. The nation cannot see sustainable economic growth without keeping inflation in check.
This is not to say that the authorities have done nothing to stabilize prices. The problem is that they have taken stopgap measures by twisting the arms of refiners, manufacturing firms, mobile phone operators and other service providers. They should keep in mind the IMF delegation???s comment that such steps cannot address underlying aggregate demand pressures or contain inflation expectations over a longer horizon.
It is time for the government and the central bank to admit their policy blunders and take more proactive measures to tame inflation and move toward sustainable growth. The nation???s total household debt surged to 950 trillion won ($879 billion) in March, raising concerns of a default crisis. The over-borrowing could have been checked if the BOK had taken preemptive action by hiking the interest rate in advance.
But it is still doubtful whether the authorities will undertake a tighter monetary policy ahead of next year???s general and presidential elections. Both governing and opposition parties appear to be already in campaign mode to woo voters. They are recklessly coming up with promises to expand welfare programs and cut college tuition by half. They certainly don???t care much about inflation risks or a budget deficit.
Aside from price stability, regaining fiscal soundness is also a crucial factor in ensuring sustainable growth. As long as politicians and lawmakers are trying to strike a populist code to glean votes, the Korean economy may get into trouble with a widening budget deficit, soaring state debt and runaway inflation. We don???t want to see politics take the economy hostage in a self-destructive power game.
(Yonhap) - Economists often say that it is important to take preemptive action to fight inflation or deflation. The reason is that authorities should adopt a prompt and appropriate monetary policy in order to produce intended effects at a proper time. For example, if the central bank raises or cuts interest rates, it would usually take three to six months to see the rate action work in reality.
The Bank of Korea (BOK) hiked its key policy rate by a quarter percentage points to 3.25 percent on June 10 to rein in mounting inflationary pressure. But the central bank is under criticism that it has been too slow to take preemptive action to ensure price stability. BOK Governor Kim Choong-soo should get the blame for pandering to the Lee Myung-bak administration???s growth-oriented economic policy.
Now, Kim and other policymakers are required to humbly accept recommendations by the International Monetary Fund (IMF) for monetary tightening. After a two-week annual policy consultation, an IMF delegation pointed out Friday that the central bank has much room to tighten its monetary policy that should be engineered to introduce a soft landing of the nation???s economy.
The IMF team noted that monetary conditions remain ???loose.??? It hit the nail on the head as the BOK still keeps the interest rate too low, given that the consumer price index (CPI) stayed above 4 percent for the fifth consecutive month in May. The figure has exceeded the BOK???s inflation target of around 3.5 percent.
In many respects, the central bank has maintained a misguided monetary policy in an apparent move to boost the economy and increase exports. Central bankers and President Lee???s economic staff should realize that the artificially low rate policy could do more harm than good. The nation cannot see sustainable economic growth without keeping inflation in check.
This is not to say that the authorities have done nothing to stabilize prices. The problem is that they have taken stopgap measures by twisting the arms of refiners, manufacturing firms, mobile phone operators and other service providers. They should keep in mind the IMF delegation???s comment that such steps cannot address underlying aggregate demand pressures or contain inflation expectations over a longer horizon.
It is time for the government and the central bank to admit their policy blunders and take more proactive measures to tame inflation and move toward sustainable growth. The nation???s total household debt surged to 950 trillion won ($879 billion) in March, raising concerns of a default crisis. The over-borrowing could have been checked if the BOK had taken preemptive action by hiking the interest rate in advance.
But it is still doubtful whether the authorities will undertake a tighter monetary policy ahead of next year???s general and presidential elections. Both governing and opposition parties appear to be already in campaign mode to woo voters. They are recklessly coming up with promises to expand welfare programs and cut college tuition by half. They certainly don???t care much about inflation risks or a budget deficit.
Aside from price stability, regaining fiscal soundness is also a crucial factor in ensuring sustainable growth. As long as politicians and lawmakers are trying to strike a populist code to glean votes, the Korean economy may get into trouble with a widening budget deficit, soaring state debt and runaway inflation. We don???t want to see politics take the economy hostage in a self-destructive power game.
