Bank of Korea governor warns on sustainability of government's expansionary spending
In short
Bank of Korea Governor Shin Hyun-song (신현송) said on 22 October that fiscal policy must keep sustainability in mind. He spoke at a press conference after the Monetary Policy Board decided to hold the base rate. He also called for an exit strategy from the government's oil price cap.
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Bank of Korea Governor Shin Hyun-song (신현송) warned on 22 October that the government's expansionary fiscal stance needs attention to sustainability. Chosun Ilbo reported that he spoke at a press conference after the Monetary Policy Board (금융통화위원회) decided to freeze the base rate. Asia Economy and Newsis carried breaking-news headlines of his remarks within minutes of each other. [ 1 , 2 , 3 ]
According to Chosun Ilbo, Shin said fiscal policy must keep sustainability in view. He said that if continuing spending arises from temporary funds, items that cannot be reversed will appear, and that undoing them later is not easy, so concerns about sustainability may arise. [ 1 , 2 , 3 ]
Chosun Ilbo said the 'temporary funds' mean excess tax revenue from higher exports by chip makers such as Samsung Electronics and SK hynix amid an AI boom led by the United States. It reported that the government has drawn up a record next-year budget of 820 trillion won. The paper read Shin's words as a caution that, if spending is greatly increased on the back of a cyclical chip upturn, fiscal shocks could follow when the effect fades. [ 3 ]
Chosun Ilbo called the remarks unusual. It noted that at the August board press conference Shin had said expansionary fiscal policy could not necessarily be called out of step with monetary policy if it were used to raise potential growth. [ 3 ]
Shin also addressed the oil price cap the government has applied since March to offset higher global oil prices caused by the Middle East war. He said it could cause fiscal problems in the long run. In his words, it temporarily restrains cost pass-through, but the longer it lasts, the more it distorts the price structure. He said that, without naming a country, wrong fiscal policy in other countries causes problems and is hard to reverse. Chosun Ilbo said this appears to refer to France. Shin added that the IMF has repeatedly warned that energy price subsidies should not last long, and that it is time to think about an exit strategy from the cap. [ 3 ]
Why it matters
Chosun Ilbo called the remarks unusual and read them as a caution against raising government spending on the back of a possibly temporary semiconductor boom. The documents give no government response.
Key facts
- Shin Hyun-song, governor of the Bank of Korea, spoke at a press conference on 22 October after the Monetary Policy Board (금융통화위원회) decided to freeze the base rate. [ 3 ]
- Shin said fiscal policy must keep sustainability in mind, and that if temporary funds lead to continuing spending, items that cannot be reversed will arise and be hard to undo later. [ 1 , 2 , 3 ]
- Chosun Ilbo said the 'temporary funds' refer to excess tax revenue from higher chip exports by firms such as Samsung Electronics and SK hynix amid the AI boom. [ 3 ]
- The government has drawn up a record next-year budget of 820 trillion won, according to Chosun Ilbo. [ 3 ]
- Shin said the oil price cap, in force since March, could cause fiscal problems in the long run and distorts the price structure the longer it lasts. [ 3 ]
- Shin said the IMF has repeatedly warned that energy price subsidies should not last long, and that it is time to think about an exit strategy from the cap. [ 3 ]
Confirmed by several sources
Still unclear
- Whether Shin's reference to 'other countries' with problematic fiscal policy meant France. Chosun Ilbo says Shin did not name a country and that it appears to mean France; this is the outlet's interpretation.
- How the government will respond to the governor's remarks. None of the documents report a government reaction.
What local media are saying
Timeline, local time
- Asia Economy publishes a breaking-news item quoting Shin on temporary fiscal spending. [ 1 ]
- Newsis publishes a breaking-news item quoting Shin on continuing spending from temporary funds. [ 2 ]
- Chosun Ilbo publishes its report on Shin's warning about the government's expansionary fiscal policy. [ 3 ]