Lee Chang-yong, governor of the Bank of Korea, supported the decision of Acting President Choi Sang-mok, who also serves as Deputy Prime Minister and Minister of Strategy and Finance, to appoint two constitutional judges. Lee evaluated this as a starting point to signal the normal operation of the economic system both domestically and internationally.
In a New Year's message distributed that day, Governor Lee stated, "Acting President Choi made a difficult but inevitable decision considering the economy rather than politics to prevent a decline in international credibility and a vacuum in state affairs."
Governor Lee first projected that the conditions surrounding our economy this year would be more challenging than ever. He noted, "If the protectionist policies of the new U.S. administration materialize, global trade may shrink, making exports difficult. Furthermore, continued economic prosperity in the U.S. may slow the Federal Reserve's expected rate cuts, potentially causing prolonged exchange rate volatility."
He continued, "The domestic situation is more severe," and said, "While the macroprudential policies have stabilized the flow of household debt, if interest rate cuts continue, it could develop into a risk factor, so we must examine it with exceptional awareness. If uncertainty continues due to evolving political situations, the negative impact on the economy could increase when combined with the already difficult external conditions."
Governor Lee stated, "In the current situation, it is difficult to stabilize our economy through currency policies alone." He added, "If a vacuum in state affairs continues amid political conflicts, it could adversely affect international credibility and add indirect shock to the economy. Therefore, it is crucial that the helm of state government remains stable."
He noted, "(Acting President Choi's decision) will serve as a starting point to inform both domestic and international audiences that our economic system will operate independently of the political process. Now is the time for the ruling and opposition parties to cooperate to ensure the helm of state government remains stable."
Regarding future currency policies, he stated, "Conflicts between policy variables such as inflation, growth, exchange rates, and household debt are expected to expand." He also said, "Based on the data collected, we will closely examine the development of internal and external risk factors and the subsequent economic changes, making flexible decisions on the pace of interest rate cuts."
He cited export issues as one of the reasons for the heightened conflict between the goals of currency policy. Governor Lee said, "Despite exports hitting an all-time high last year in terms of value, concerns over slowing exports are growing." He continued, "This is because our export structure has not diversified and remains concentrated on a few key products such as semiconductors and automobiles."
He also pointed out the lack of activation in the stock market as a cause. He stated, "The expansion of overseas investments shows the unfortunate reality that our stock market is no longer attractive, leading investors to leave. If capital outflows to overseas continue, there is a high possibility that a vicious cycle will persist, where new corporations cannot grow due to difficulties in funding in the domestic market."
He noted, "The household debt issue is no exception," stating, "Over the past 18 years, household debt has steadily increased, closely linked to real estate loans. Thanks to the tightening currency policy and macroprudential policy, the household debt-to-income ratio has dropped to 91% for the first time in 18 years, but it remains significantly higher than in major countries."
Governor Lee warned, "The structural problems mentioned now are not new but have been raised for a long time. However, as we have delayed addressing them, our potential growth rate has dropped to 2%. Without efforts to resolve this, it could fall to the 0% range by the late 2040s."
He stated, "When assessing economic conditions, it is time to let go of memories of past high growth rates and objectively evaluate our economy's capability." He added, "The Bank of Korea will continue research to find and implement structural reform measures needed by our society, consistently proposing policy alternatives that can gain social consensus."
Lastly, he referred to Sun Tzu's Art of War, "Yi Han Wei Li" (turn misfortune into fortune), stating, "If we all calmly practice what we can do and should do without fearing difficulties, creating new opportunities, our economy could once again leap forward."