A WORD FROM THE EDITOR
We received the following letter from the Bank of Korea press office. We are not surprised that some of our features generate controversy. We affirm our right to express an editorial stance based on our research, knowledge and outside input, and we welcome any discussion on our stories and reports. Gordon Platt, who was in charge of the Central Banker Report Cards editorial project, will answer on the specifics of the letter and our position.
Andrea Fiano, editor, Global Finance
Dear Global Finance,
The much-anticipated release of your October edition justifying your assessment of Bank of Korea governor Choongsoo Kim’s performance over the past year turned out to be disappointingly misguided and ill-informed.
First of all, I would like to point out that the first Base Rate cut in 41 months came in July of this year, not in June. Secondly, your quote from governor Kim and subsequent comments about capital flows and currency is deceptively misleading—by placing them within the context of the rate cut, you strongly suggest that the cut was made with the intention of holding down the won’s exchange value to support exports and limit capital inflows.
In its monthly rate-setting meetings, the Monetary Policy Committee takes into account an overall assessment of domestic economic developments as well as those abroad and of inflationary pressures based on the latest available information; such decisions are not made out of concern for any specific sector. Lastly, your observation regarding the investigation of CD rates is completely wide of the mark and clearly indicates a lack of awareness about Korea and its financial system. Unlike the Libor issues in the UK, the Bank of Korea and its officials are neither involved in the investigation nor do they have any responsibility for overseeing the setting of CD rates. Such responsibilities including the day-to-day regulation and supervision of financial institutions rest with the supervisory authorities.
In the future, we recommend that you substantiate your assessments with reliable evidence measuring up to the high standards of excellence befitting the truly global publication for corporate leaders, bankers and investors you claim to be.
Myongjong Lee, director, Press Office, The Bank of Korea
Dear Myongjong Lee,
We regret the typo in the October edition, where the month of July was printed as “Juny,” and the unnecessary confusion it caused. Nonetheless, this does not negate the fact that it was more than three years since the Bank of Korea previously cut its rate. That is the main point.
As to our assessment, we based our decision on the fact that the economy has weakened considerably and that a rate cut could have come sooner. Governor Kim’s quote points out the fact that the South Korean economy is export-dependent and is exposed to the problems in Europe, which have weakened export demand. The European debt crisis has persisted for a number of years. It was known for some time that the crisis could have spillover effects on South Korea’s economy.
We also took into account an overall assessment of economic developments in the country up to the time that the grades were decided. We do not believe that inflationary pressures were a main concern.
However, the level of household debt in the country is troublesome. It is similar to the situation in the US before the subprime mortgage crisis. We realize that the Bank of Korea has no role in setting CD rates (other than the fact that all rates are benchmarked to the bank’s policy rate). Nonetheless, the investigation did take place on governor Kim’s watch. The central bank is charged with maintaining financial stability.
Thank you all the same for your letter. We wish all the best to governor Kim and his team
Gordon Platt, staff writer and editorial project manager,