Bank of Korea Governor Lee Chang-yong calls for a shift in government-led industrial policies toward joint efforts with the private sector to better manage risks.
Key Remarks at IMF-Korea Conference
During a high-level joint conference with the International Monetary Fund and Korean authorities on the 5th, Governor Lee highlighted how bold government interventions have shaped the current economic landscape. He stressed the need for measured responses to future liquidity challenges, urging appropriate judgment in policy execution.
Governor Lee pointed out stark realities in ongoing operations: non-performing loans have climbed to 17% over three years of sustained efforts, with only one in eight companies normalizing within a year. Despite these measures, he warned that the approach remains overly concentrated, akin to ‘putting all eggs in one basket,’ lacking sufficient diversification.
Push for On-Lending and Risk Sharing
The governor advocated transitioning away from direct government selection of companies. Instead, policies should embrace on-lending models where public and private financial institutions jointly assume project risks. He explained that governments excel at overseeing major conglomerates and broad economic surveys, while private entities bring strengths in detailed company screening and monitoring, perfectly aligning with targeted financing needs.
Market-Oriented Reforms Essential
Governor Lee emphasized activating industrial policies and structural reforms through market mechanisms. He noted that focusing on specific sectors often results in superficial changes, such as fluctuations in land prices, interest rates, or liquidity. True progress in high-tech sectors, first-time ventures, labor market flexibility, and economic activation demands substantial structural overhauls.
To boost Korean firms’ credit ratings and sovereign ratings alike, new growth engines must drive improvements. Governor Lee underscored opportunities in comprehensive areas like AI and intensive R&D, positioning them as key avenues for enhanced competitiveness.
