Input 2021.01.23 06:00
“Concerns about the damage of capital outflow in emerging countries due to the normalization of the US economy”
“It is necessary to prepare for a tapered tent by raising basic economic strength”
“U.S. economic inflation can only be judged after a year or more”
“It’s painful, but self-employment restructuring is necessary…Social safety net should be strengthened”
“At the time of the 1997 foreign exchange crisis, the international financial market was wondering whether Korea would abandon Korea. It is the story of the people who moved the international financial market at the time that they made a default (default) and considered taking it as a lesson for the world. If not, it is a problem that can face such difficulties anywhere. In the process of normalization after Corona 19, Korea may also suffer from foreign currency outflow.”
In an interview with Chosun Biz, Professor Kim Jin-il, a leading monetary policy expert in Korea, answered with a firm tone when asked about the possibility of a re-enactment of a tapered tentrum (astrictive attack) after the novel coronavirus infection (Corona 19). He said, “I remember that our country overcame the IMF (International Monetary Fund) foreign exchange crisis, but I remember that the international financial world selectively rescued Korea.”
He worked at the Federal Reserve System (Fed) from 1996 to 1998 and from 2003 to 2011, and he learned the perspective of global market participants looking at Korea in the face of the economic crisis. Ten years have passed, and although it has risen to the top 10 in the world in terms of gross domestic product (GDP), Korea is a non-key currency that allows foreign investors to recover funds to secure the dollar.
Professor Kim said, “Korea has risen to the ranks of advanced countries in terms of GDP, but since it is not a key currency, it cannot be free from the fear of foreign currency outflows experienced by the financial markets in emerging countries.”
Professor Kim said that in order to prepare for that period, the precision engineering method is necessary. It is said that the possibility of recovering funds should be minimized by strengthening the economic fundamentals such as fiscal soundness and potential growth power. “In the end, only some countries have to withdraw money. When you think about where to take the money, you see how strong the economy is and how easy it is. In terms of fundamentals, the Korean economy should look positive.”
◇ When money goes in real time, it should be matched with interest rate adjustment
-Liquidity, which was largely released to defend the economy after the outbreak of Corona 19, is now the biggest challenge for governments and central banks in the next few years.
“The moment the money runs out, it is the financial market’s physiology that somebody has no choice but to damage. The question of how to deal with it socially remains. I think the difference between age, income, and class will be noticeable. Corona 19 prevents economic activity from being able to do so. Classes are likely to suffer intensive damage if government support decreases in the normalization process. In the international financial market, we believe that a crisis may arise from the outflow of foreign currency liquidity in emerging countries.”
-There are many prospects that the liquidity market will continue in the global financial market right now.
“It is true that it is a liquidity market. A lot of money has been released around the world, but the real economic activity does not allow money to flow, so the liquidity in the financial market is overflowing and the price of stocks is increasing. It can be said that it is holding on to this level.
In the central bank, it can be seen that the real money flows rather than the stock market, but it is not something that can be made artificially. In order to change the flow of money, taxation policies can be used as a means of taxation, but side effects can occur. If money continues to flow through finance, it will eventually overflow and go into real life, but you can’t know when. If the real economy is revived, the flow of money will change, and the timing of interest rate hikes can be seen as being aligned with this trend.”
-What do you think will be the momentum for the US Fed to turn a easing monetary policy?
“It will be the effectiveness and speed of spread of the COVID-19 vaccine. In particular, in Western societies such as the US and Europe, it is important how actively the people accept the vaccine. If there are many people who refuse to get the vaccine in Western society, it is economically also Negative effects are inevitable. This acceptability problem is the most uncertain. I think it will not be easy in the short term for vaccination to proceed quickly and the number of corona19 confirmed cases to decrease significantly.”
◇ No need to worry about inflation caused by the base effect
-In the US, the inflation debate is already in full swing.
“The inflation rate has been high recently, and we cannot rule out the possibility that it is a simple base effect (the indicator rises reflexively because the inflation rate was low last year). You need to look at the inflation rate for more than a year to determine if inflation is occurring. Fed chairman Jerome Powell declared an average price target (AIT) in August last year to reduce market concerns. Don’t worry about rising inflation due to the underlying effect. Is the idea.
-If there is something to be particularly noticed in the inflation debate.
First of all, it is said that it is worth paying attention to the rising price of raw materials, especially copper. This is not a concern if the price increase is concentrated on some items, but it is important whether this will spread to the total raw material price. For inflation, the key question is whether rising prices spread to the entire economy, stimulating expectations for inflation. That’s a problem for the real central bank to worry about, and if this problem comes to the surface, it leads to concerns about interest rate adjustment.”
-How do you see the recent 10-year Treasury bond interest rate rising to more than 1%?
“It’s been reflecting concerns about inflation, but the central bank believes that the degree is deserving to be reflected. It is highly likely to stabilize at the current level.”
Korea, which had relatively little impact from Corona 19, is likely to face a different phase from the US in the future. The U.S. economy, which was a booming period before Corona 19, is predicted that if vaccinations proceed as planned, the economy can recover in the near future. This is why inflationary pressures in the US are forecast to rise.
However, there are concerns that the economic recovery may not be as fast as expected in South Korea, where the economic growth rate fell sharply in the two years before Corona 19. The Korean economy, which has been tagging deflation concerns over the past few years, is predicted that consumer inflation will remain below 1% this year. There are also many views that predict economic recovery and disharmony in inflation between the US and South Korea. This is the homework to be solved by the Korean economy, whose potential growth rate has declined rapidly since before Corona 19.
-The damage caused by Corona 19 was relatively small in Korea, but how about recovery?
“As the shock wasn’t as big, the economy won’t be as big. I think the US will go down a lot and then go up. But, after Corona 19, a lot will change. It is difficult for economic activity to completely return to the level before Corona 19. will be.
In the United States, for example, the travel sector was shocked shortly after the September 11 terrorist attacks. Before 9/11 in the United States, taking a domestic flight was easier than taking a highway bus in Korea, but after the terror, the boarding process became more complicated and people got used to it. It is not known how much the economic behavior will return once it changes. Even if Corona 19 subsides due to vaccinations, etc., maybe they will continue to wear masks for a while, especially in winter, most of them will not find it.”
-The Korean economy suffered a sharp decline in growth rates in 2018 and 2019 even before Corona 19. It seems that there are not a few wounds from Corona 19.
“Is it possible to find out whether the economic slump in 2018-2019 was due to the semiconductor stagnation or structural problems such as aging, if Corona 19 did not occur and the trend continued further. In the process of overcoming Corona 19, too many points have changed. It has become difficult to determine the cause of the economic slump for two years.If the economic slump caused by a temporary shock could be an opportunity to overcome growth from the economic rebound caused by the normalization of Corona 19. If the reason for the economic downturn at that time was due to an inherent structural problem, the economic rebound Will be quite constrained.”
-If it is a structural or intrinsic problem, what kind of policy is necessary?
“Structural problems, such as population decline, have no choice but to find solutions through fiscal policy. To solve these problems, it seems difficult to have a social consensus on how much fiscal expenditure will increase. Because of the large impact of the economic crisis caused by Corona 19, the government There is a consensus that there is no choice but to increase fiscal spending, but I think I have different thoughts about how long this crisis will last. If the Corona 19 crisis is about to end quickly, you can use it all at once to overcome it, but the Corona 19 crisis itself will last a long time. If it’s a job, you shouldn’t respond in a way that you write a lot at once.”
-What are the factors that Korea should consider when increasing fiscal expenditure?
“As a medium-term consideration, we have to consider the issue of aging and unification in the long run. No one knows how much the cost of unification will be, and how much fiscal demand will increase due to the aging. The IMF and others are asking the Korean government to expand fiscal expenditures, but This is why we cannot readily agree. There must be a social consensus on how much financial reserves should be reserved to prepare for unification in case of an aging society, but it is not an easy matter.”
-Looking at the current government spending trend, the ratio of national debt to GDP is likely to exceed 60% by 2024. Do you think our economy can handle it?
“If the national debt ratio rises to 60% and falls down to 60%, we may be able to handle it. But it is not, so we are worried a lot. The Korean financial market is still recognized as an emerging market, so it cannot be free from the pressure of foreign capital flow. Foreigners are When trying to withdraw funds, economic fundamentals are the most important factor. Growth and fiscal soundness are the most important factors, and it is not desirable for Korea’s fiscal soundness indicators to deteriorate rapidly.”
-In the politics, there is a discussion about introducing basic income and spending money on the basis of MMT (Modern Monetary Theory).
“If the government prints government bonds and the central bank takes over them and releases money, if international trust in Korea’s finances is maintained. Indeed, when Korea does so in the international financial market, the market maintains trust in economic fundamentals. I don’t know if this will happen. In theory, both are possible, but theory alone is not a decision.”
◇ Self-employed people exposed to coronavirus, inevitable restructuring
The government and the Bank of Korea expect Korea’s economy to grow by 3% this year. There is growing expectation that exports of semiconductors and automobiles will lead the economic recovery. However, it is not an exaggeration to say that the sector that drives the domestic economy such as consumption and employment is the opposite. In particular,’self-employment’ is predominantly predicted that it will be difficult to return to before Corona 19. There is an evaluation that the problem of self-employment, which has inflated the body due to the combination of job problems and aging, has been exposed to Corona 19.
-Will the Korean economy be able to go back to the pre-Corona 19?
“The government will have learned a lot from Corona 19. If the water is drained, you can’t see the bottom. You must have learned where it is vulnerable by easing personal interest burden and providing financial support. After Corona 19, the time of choice may come. It’s probably a problem for self-employed people.
You have to think about how far to protect it with a social safety net. Wasn’t there a delivery problem when the heavy snow came a while ago? You can also think about whether you have to deliver even when it snows, and whether it is possible to pay more for delivery if you want. For example, Uber in the U.S. changes its price every minute. When it rains or snows, the price rises. You have to worry about society on a large and small scale.”
-Please give me advice on how economic policy should change after the coronavirus.
“As I have been an outside director of Kakao Bank for the past two years, corporate decisions are very fast and everything changes quickly. There is an unavoidable aspect, but the government’s decision-making speed is too slow. Young people who lead new economic activities such as companies and startups It seems that there is a need to get feedback quickly on what aspects of government policy influences while actively communicating with the government.. The government recently suggests digitalization as the main direction of policy. It is not right for people in their 50s to 60s to lead all decision-making. to be.”
-With the recent stock market overheating, whether to maintain the ban on short selling is becoming a political issue. What do you think.
“It’s important to whom to allow short selling, but I can’t help but continue to allow it as it is now. As it is best if foreign capital doesn’t come in and go out, it seems like it’s going to keep the money coming in to the stock market so that there is still money in the stock market. This should be because the performance of the companies invested in the market remains stable, which means that the health of the real economy should be represented by a rise in the stock price, and the government policy should be directed to maintaining the health of the real economy, simply because the stock price rises. It is difficult to give the impression that the direction is aligned with this persistence.”