Policy Measures and Exchange Rate Policy: The Case Study on Korea

Abstract

Several research institutions have forecast that global economic growth this year will be slow and weak, as in the past few years. Key contributing factors are China's rebalancing process, the US monetary policy normalization, and slowdowns in emerging market economies (EMEs). Korea is not an exception. The country has been recording minus growth in exports for 16 consecutive months. Of particular concern are the shipbuilding and shipping industries, which are the backbone of the Korean economy, and have been showing extremely poor performance during the last couple of years due to deficient global demand and excessive supply. The total amount of loans provided by government-run banks to major companies in the shipbuilding and shipping industries reaches over 20 trillion won. Since this could give rise to financial instability, the Korean government, at this stage, is considering "Korean Quantitative Easing". Korean Quantitative Easing (QE) differs from QE in the US. In the case of Korean QE, the central bank buys bad debts from government-run banks and gives out loans to insolvent companies or the government.