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S.Korea's central bank calls for public consensus before adopting QE

Xinhua, April 29, 2016 Adjust font size:

South Korea's central bank on Friday called for public consensus before adopting the Korean-type quantitative easing, which President Park Geun-hye mentioned the need to help finance the government-led corporate restructuring.

Deputy Bank of Korea (BOK) Governor Yoon Myun-Shik told a press conference to explain a report on the bank's monetary and credit policy that"national or social consensus should be formed"first before the BOK prints money to help fund the corporate restructuring.

The ruling Saenuri Party proposed the Korea-version QE as one of its main economic pledges in the April 13 parliamentary election, where the governing party was unexpectedly defeated.

The proposal involved the revision of a relevant bill to allow the BOK to purchase bonds or stocks issued by the stat-run Korea Development Bank (KDB), which will, in turn, provide the funds from the BOK to troubled companies.

President Park mentioned the need for a selective QE, but concerns remained as the Korea-type QE targets specific areas such as financial assistance to corporate restructuring in shipping and shipbuilding industries, which is traditionally funded by fiscal coffer.

It is totally different from QEs adopted in the United States and Europe, which begin to print money only after zero-rate policy rates have little impact to reinvigorate an economy. Some of South Korean experts worried about an abuse of the central bank's money-printing that can lead to various side effects.

Yoon told reporters that should capital be invested into state-run banks for corporate restructuring, it would basically be a role of fiscal coffer, saying that if a central bank seeks to print money to play a fiscal role, it would be made possible after national or social consensus is formed.

The deputy governor acknowledged the need for corporate restructuring to secure an expanded growth potential, but he said the Korea-version QE under discussion is different from QEs other central bankers carried out.

Regarding the required public consensus, Yoon said it would be the revision of a relevant bill or the parliamentary approval.

Opposition parties have disapproved of the selective QE, calling for fiscal financing. Ahn Cheol-Soo, head of the minor People's Party which gained 38 seats in the 300-member parliament, said Friday that the BOK's money-printing will place burden on all people in the end though it could look like saving fiscal funds at a first glance.

Ahn demanded the supplementary budget plan or the offering of public funds, saying that money-printing for corporate restructuring is not a right path to follow.

His comments can be considered important for policy-making decisions as his party plays a casting vote in passing any revision of a bill. The main opposition Minjoo Party won 123 parliamentary seats in general elections, while the ruling party secured 122 seats. Endit