Bank of Korea faces uncertainty

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IOL BR Korea 159177 Bloomberg Suh Young Kyung, director of financial markets division at the Bank of Korea, who is the first female official of top rank. Lack of women appointments at the central bank is one of the issues under scrutiny. Photo: Bloomberg.

An unprecedented wave of innovation in the way South Korea’s central bank picks and promotes its people is facing the test of whether it can survive the departure of its champion.

Former governor Kim Choong Soo ended traditions like promotion by tenure and offering greater weight to graduates from elite universities such as Seoul National and Yonsei, and he oversaw a surge in the hiring of women before his four-year term ended in March.

His successor said the changes caused “chaos”.

Lee Ju Yeol, a 35-year Bank of Korea (BoK) veteran, charged a task force to revamp management policies and operations, in one of his first steps since taking office. The exercise is drawing focus to the challenge of taking on conventions in Asia’s fourth-largest economy, where one bank saw the longest strike in Korean history after an effort to base pay on performance.

“Kim got the BoK out of the Dark Ages – he really made a difference to a male-dominated culture,” said Yi In Sill, a Sogang University economics professor in Seoul and former head of the government’s statistics office who has participated in policy discussions at the central bank. “This is the 21st century, and more women’s voices should be heard in the policy-making arena. BoK culture has been too rigid.”

Lee, 61, has made seven senior appointments since taking office on April 1, including the head of the human-resources office. All picks were male. A broader staff reshuffle may come as early as this month, according to Lim Hyung Joon, head of personnel and administration at the central bank.

The new chief is not “trying to return the BoK to the old days and roll back all of Kim’s reforms,” Lee Heung Mo, who heads the bank’s management task force, said in an interview in Seoul last month. Efforts to “push for more diversity in talents and global expertise” would continue, he said.

President Park Geun Hye, the nation’s first female president, turned to Lee, a graduate of Yonsei University, as her selection after a series of nominee troubles that left her struggling to form a cabinet last year amid graft allegations surrounding four of her picks.

Lee, who served at the central bank during the 1997-98 Asian financial crisis, sailed through the first parliamentary vetting of a BoK governor pick.

In his inaugural speech on April 1, Lee said that with regard to human resource management “the most important criteria should be performance and reputation built up over a long period of time”. He said that “while seeking the stability of our organisation based upon this principle, I will also pursue diversity and openness”.

The central bank has limited ranks of women with long tenures, a consequence of decades of a dearth of women hires. Kim, 66, shook up employment practices, boosting the number of female entry-level hires to 30 of a total of 72 this year, from 10 of 36 the year he took office. Back in 2002, just six women were hired compared with 54 men.

“The increase in female hires was due to more female applicants taking the BoK’s entrance exam, which was in turn due to more female students majoring in economics or business administration in university,” the central bank said in a statement on Thursday.

Kim’s efforts – in accord with initiatives by President Park’s administration to raise the role of women in the workforce and leadership positions – also saw the promotion of Suh Young Kyung, now 50, who became the BoK’s youngest deputy governor and the first female in that role.

Suh declined public comment on prospects for personnel management under Lee.

The ex-governor’s changes included attempts to raise the international profile of the South Korean bank. The BoK hosted 39 international conferences and meetings under Kim last year, up from 12 in 2010, his first year. International joint research projects rose to 25 from none.

Kim Jun Il, 56, whom the former governor recruited for a new chief economist position, is now a deputy governor, the first from outside the central bank.

Kim Jun Il, an ex-International Monetary Fund economist, declined public comment on Lee’s policies.

The central bank sought a larger share of new hires from beyond the country’s top schools under the previous leadership, broadening its catch to graduates from 20 universities for this year from eight for 2010. It recruited 11 graduates of second-tier universities outside metropolitan Seoul, up from one for 2010, with the proportion of new hires from South Korea’s top three schools falling to 62.5 percent from 83.3 percent.

“Our hiring is based on an entrance exam,” the BoK said in Thursday’s statement. “Anyone who wants to work in the BoK must pass the exam. An applicant is hired regardless of the university the person is from if the person does well in the exam.”

The former governor’s campaign for change sowed division, incurring the criticism of those who concluded the moves were too sudden for an institution that previously hewed to Korean traditions of age- and tenure-based advancement.

“Many people got hurt when their reputations built up over years were disregarded because of reforms and globalisation,” Lee said, as he came to the end of his term as Kim Choong Soo’s top deputy in 2012.

People felt “a sense of chaos” when they saw old values and rules negated overnight, he said.

Lee now pledges “a rebirth of the Bank of Korea as a central bank trusted by the Korean people.”

Asked about his plans for personnel changes at an unrelated event last month, Lee declined immediate comment and referred a Bloomberg reporter to an opportunity to raise the issue again at a mid-June event. The central bank is making every possible effort to level the playing field to give women a fair chance, said Lim, the head of the personnel department.

Former governor Kim declined to comment on the outlook for the BoK under his successor, saying in a mobile phone message that it would not be appropriate. In his final personnel change, in January, Kim promoted 109 officials, of whom 20 were women.

For all Kim’s changes, only three of the central bank’s 225 most-senior officials are female. All of the six board members who currently vote on monetary policy are men.

Suh, who refused instructions to wear a schoolgirl’s outfit when she joined the BoK in 1988, sits on the side of the room where the deciders gather.

Such a lack of diversity makes decision-making vulnerable to “group think”, says Caroline Freund, a senior fellow at the Washington-based Peterson Institute for International Economics and a former World Bank economist.

“A diverse group is much more likely to get a full picture of the risks to the economic outlook and the need and opportunities for reform,” Freund said in response to questions.

Lee Sung Nam, the only woman to have been on the central bank’s board, said “the BoK still has a long way to go in terms of utilising female talents.

“The risk under Lee is that the limited advances made so far may fade away and the central bank and the nation will lose out as a result,” said Lee Sung Nam, who left the BoK in 2008.

“He must not stop.” – Eunkyung Seo for Bloomberg



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