“The policies of the Bank of Korea and the financial authorities are misaligned… “We must reduce debt together.”

It was pointed out that the Bank of Korea and the financial authorities should resolve the policy gap and begin debt reduction (deleveraging). At the Korea Finance Research Center’s policy symposium on ‘Korea’s economic policy, what is the problem?’ on the 30th, Chung-Ang University professor Heo Seok-gyun (business administration) said, “In order to resolve excessive private debt and inflation rates that exceed the target, an organic policy that fits the duties of monetary and financial policy authorities is needed. “Although a division of roles is required, the recent series of inconsistent policy implementations among policy authorities is actually causing confusion in the financial market,” he criticized. In a situation where the Bank of Korea is pursuing monetary tightening, it is interpreted that the financial authorities are expanding lending through policy financial products or putting pressure on the financial sector to lower interest rates, which means that it is a mismatch. Professor Heo said, “Not only is deleveraging absolutely necessary, but the difficulties resulting from deleveraging are largely bearable, so the Bank of Korea should abandon its passive attitude shown by the late timing of intervention and low intensity of intervention and take steps toward deleveraging.” “The policy of monetary tightening must be implemented more boldly than now,” he emphasized. This means that the Bank of Korea must raise interest rates. He also said, “Financial authorities also need to participate in deleveraging efforts to reduce excessive private debt in keeping with the Bank of Korea,” and “Boldly exclude those subject to exceptions from the Debt Service Ratio (DSR) regulation, which has been widely recognized so far.” He emphasized, “There is a need to improve the effectiveness of regulations by reducing and providing public guarantees to improve the jeonse guarantee system, which unintentionally benefits financial companies and tenants.” At the same time, he added, “There is a need for policy coordination where separate support measures are implemented at a microscopic level for vulnerable groups that may arise during this process.” At the debate on this day, the incongruity of the current government’s tax and fiscal policies was also mentioned. Professor Ryu Deok-hyun of Chung-Ang University (economics) said, “In a difficult economic situation where the economic growth rate in 2024 is expected to fall short of the potential growth rate, the government has set a fiscal policy direction of austerity, setting total expenditures at 2.8%, the lowest growth rate in the past 10 years. “The 2024 budget is a budget that is incongruent with the economic situation and fiscal policy stance,” he said. “Excessive fiscal surplus or deficit must be avoided, but fiscal policy, which is a ‘means’ to achieve the ‘goal’ of stabilizing the national economy, cannot shake the ‘goal,’” he said. “We propose a shift in policy stance to a fiscal policy that responds to the economy,” he said. Reporter Jeon Seul-gi sgjun@hani.co.kr