Following Wednesday’s unexpected election results that saw the opposition Minjoo Party perform much better than expected, previous calls for quantitative easing from the Saenuri Party are increasingly unlikely to come to fruition. (Image : Yonhap)
SEOUL, April 15 (Korea Bizwire) – Following Wednesday’s unexpected election results that saw the opposition Minjoo Party perform much better than expected, previous calls for quantitative easing from the Saenuri Party are increasingly unlikely to come to fruition.
The quantitative easing measures were suggested by Kang Bong-gyun, who spearheaded the Saenuri’s Party election campaign, causing conflict between the former ruling party and the opposition.
Quantitative easing is an unconventional monetary policy in which a central bank purchases securities in a bid to lower interest rates and increase the money supply. The method has been employed recently in the U.S., Japan and the EU.
Saenuri Party officials expressed their will to amend the Bank of Korea Act to enable them to implement quantitative easing. However, following the election results, experts assume that it will be difficult for the plan to be realized.
Kang explained that Korea’s quantitative easing plan targeted household debt and industrial restructuring, with a specific focus on lowering the repayment burden for Koreans mired in serious household debt.
Under the Saenuri plan, the Bank of Korea (BOK) would take over the residential mortgage-backed loans issued by the Korea Housing Finance Corporation, and make repayments over 20 years. The Saenuri Party also anticipated that if the BOK takes over the bonds of the Korea Industrial Bank, corporate restructuring could be carried out.
If the law is amended, the BOK will be able to acquire residential mortgage loan securities or bonds issued by the Korea Industrial Bank, which is impossible under current laws.
However, with the Minjoo Party’s recent election victory, the future of the amendment to the law is uncertain.
There are many obstacles to clear in order to realize the quantitative easing plan.
It is uncertain whether the Saenuri Party will be able to realize their promise, as the former opposition party is likely to mount a vigorous debate regarding the positive and negative effects of the policy.
The Minjoo Party is opposed to the idea. They claim that the quantitative easing will simply provide funding to large corporations, taking a step back in economic democracy, and hinder the independence of the BOK.
After the Saenuri Party lost the election, and given the great rift between the two parties, it will be hard for the Saenuri Party to gain a majority of votes in the National Assembly.
The BOK is remaining silent on the matter, but it seems to be negative on the idea. When asked about his thoughts on the political world’s demand for quantitative easing, Lee Ju-yeol, the head of the BOK, answered that the institution is doing its best to support restructuring.
While many are skeptical about whether Korea is in the right situation to take advantage of quantitative easing, some are voicing that it should only be considered as a last resort. There is a possibility that the policy could be misused. In addition, many are concerned that the policy could hinder restructuring.
A researcher at a private research facility pointed out that standards related to corporate restructuring and household debt should be updated first, and choosing a financing method such as quantitative easing should come later.
Even if the Bank of Korea Act passes, how and when quantitative easing will be executed is hard to anticipate, as the BOK will make the final decision. If the officials at the BOK are opposed to the way in which quantitative easing is to be executed, it will be difficult to put the plan in action.
Though there is a long way to go until quantitative easing is realized, it could be a huge burden to the BOK in the sluggish economy.
Professor Kim Jung-sik at Yonsei University expects that the BOK could lower the base rate one or two times this year with exports suffering. “Quantitative easing could be an option if the economy doesn’t recover after lowering the base rate,” he said.
By Francine Jung (francine.jung@koreabizwire.com)
