Korean deal on monetary board seats criticised

Source: Korea Herald

With a decision on bestowing the Bank of Korea greater authority drawing close, affected non-governmental organizations are challenging the developments that could lead to a loss of their influence on monetary policy.

Two business organizations, which control two seats of the BOK' s seven-member monetary-policy board, yesterday criticized recent moves by the Ministry of Finance and Economy and the BOK to take over their rights to appoint board members.

"It seems to be a makeshift measure that could prevent rate policies from reflecting market situations," said Lee Kyung-sang, who is responsible for business policy at the Korea Chamber of Commerce and Industry.

Under the current system, the BOK governor, who chairs the interest-rate-setting panel, recommends one of the six other board members. The other five seats are filled with nominees from the finance minister, the Financial Supervisory Commission chairman and three nongovernmental groups, though the President officially appoints them.

The central bank has wanted to increase its seats from two to at least four, by taking over two of three spots held by the business groups. Currently the KCCI, the Korea Securities Dealers Association and the Korea Federation of Banks nominate the three board members.

However, the Finance Ministry has strongly opposed the BOK's plan to take the seats. As a compromise, the two sides are allegedly seeking ways to each grab one of the seats held by the KCCI and that KSDA, while letting the bank federation keep its chair.

Lee of the KCCI contended that the BOK Monetary Policy Committee must include a member who can represent the business community, as monetary policy is partly meant to support this sector.

Officials at the brokerage association echoed the business group's sentiments.

"We have recommended a securities expert as a monetary-policy committee member, as the securities market accounts for more than half of the nation's entire financial sector," said an executive director at the KSDA who requested anonymity.

He argued that the situation in the bond markets should be a crucial factor in determining interest rates, noting that bond yields are considered benchmark market rates.

"It is clear if the Finance Ministry and BOK expand their appointment authority, there won't be any representative of the securities circle in the monetary policy committee, which is totally nonsense," he asserted.

Despite the flurry of criticism, the BOK pointed out that such a compromise would be inevitable in order to improve the current system, which it claimed has undermined the central bank's independence.

It claimed that under the present system, the Finance Ministry controls a majority of the board members by exerting influence on all three commercial groups with committee seats.

The BOK has pushed for a bill submitted jointly by more than 100 lawmakers, which is aimed at granting the central bank greater rights to select committee members, implement its budget without the government's approval and carry out inspections of financial institutions.

"Even if finally approved, the compromise (with the ministry) may not be the best, but it would be better than the present system at least," a senior BOK official commented.