'Key Rate Hike Should Be Delayed'

Kim Tae-joon, president of Korea Institute of Finance By Kim Jae-won Staff Reporter The central bank should not shift its monetary policy to a credit-tightening mode until the economy shows a sustained recovery in the second half of this year, according to the head of a leading economic think tank. "The key interest rate is very important because it has a far-reaching impact on the economy. In that regard, I think a good time for a key rate hike is the second half of this year," Kim Tae-joon, president of the Korea Institute of Finance (KIF), said in an interview with The Korea Times at his office in Seoul, last Friday. The former professor at Dongduk Women's University said the government should take a cautious approach toward its exit strategy as there are still lingering uncertainties both at home and abroad. "We are not sure yet where the world economy is headed. The chances that advanced countries will undergo a double dip still remain. At home, some firms are still fragile, and households are highly in debt. It is dangerous to have too bright an outlook," he said. Kim stressed that now is the time to focus on restructuring the corporate and credit sectors. "I would like to suggest two things - restructuring troubled companies and retooling debt for households. I believe that if these key issues are addressed properly, the economy will be in much better shape to withstand the side effects of a rate hike," he said. Of late, the policy rate has emerged as a hot-button issue as Vice Minister of Strategy and Finance Hur Kyung-wook attended the Monetary Policy Committee meeting of the central bank earlier this month. Hur became the first senior official of the finance ministry to attend the monthly gathering in 10 years. Kim said that the government reserves the right to take part in the meeting, but that the Bank of Korea (BOK) should not take it as pressure. "Well, we cannot tell the government not to visit the central bank because it is the ministry's right to do so. Rather, the BOK would be better off to regard it as a channel for dialogue, not as a means of interference," he said. "However, I support the independence of the central bank. I hope the BOK listens to the ideas of the government but decides the rate independently." Kim pointed to a lack of trust as a reason for the latest dispute. "I think that the two parties lack trust in each other. If there were a high level of trust, then this wouldn't be a problem." Regarding the currency market, the Columbia University-educated scholar forecast that the won will continue to gain ground against the greenback throughout this year. The won-dollar exchange rate reached as high as 1,190 won per dollar on Dec. 18, 2009 but it now fluctuates in the neighborhood of 1,120. "It may go back and forth from 1,000 won to 1,100 won this year as money will flow into the nation on the back of an economic recovery. The trend will continue until the U.S. Federal Reserve raises its key rate," Kim said. "The strength of the won is a good sign that the Korean economy is getting stronger, but we need to monitor it to protect domestic exporters." The 54-year-old economist also talked about the recent dispute between KB Financial Group and the Financial Supervisory Service (FSS) over the outside director system. "The current outside director system is problematic because it guarantees independence for outside directors, with no responsibility imposed. I think the system should be reformed." Kim said that he will make further efforts to transform the institute into a more globally-competitive think tank. "I hope we can lead in economic research both at home and abroad by setting forth new agenda items. I will focus on this, using an international network." shosta@koreatimes.co.kr