([Oh Jeong-geun's Aju Economic Perspective] Stabilizing the Exchange Rate via the National Pension? A Sustainable Policy Shift Is Urgently Needed

 

The government is strengthening the stewardship code in order to alleviate the "Korea discount."

However, some quarters warn that expanding stewardship without fully guaranteeing independence could allow political objectives to destabilize corporate management.

Concerns have also been raised that "the National Pension must not be politicized" and that "the system must be carefully designed if enhanced stewardship is to translate into higher fund investment returns."

There are also calls to transfer supervisory authority from the Ministry of Health and Welfare to the Financial Services Commission. At present, the stewardship activities of institutional investors fall under the oversight of the Financial Services Commission.

The National Pension Service, by contrast, is an agency under the Ministry of Health and Welfare, which administers the National Pension system. Proposals have thus emerged for legislation that would transfer integrated management to the Financial Services Commission—an authority that, as in Japan, possesses specialized financial expertise.

The manner in which the fund is managed has recently grown unsettled. This is because the government has declared its intention to take a leading role in fund management under the banner of a "new framework."

Following a recent meeting of the Fund Management Committee, a task force (TF) chaired by the First Vice Minister of Health and Welfare was formed and has embarked on currency hedging conducted under a posture of strategic ambiguity.

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For some time, considerable criticism has been directed at the practice of channeling the bulk of the National Pension Fund into overseas investments purely in the name of improving returns.

Even so, increasing the fund's domestic equity allocation does not constitute a fully adequate alternative.

This is because the National Pension would become increasingly likely to emerge as the largest shareholder in major domestic corporations. It is against precisely this backdrop that the concern of "pension socialism" has been raised—the prospect that the National Pension intervenes in corporate management through the stewardship code, whereby the government comes to dictate corporate operations.

Increasing the allocation to domestic government bonds is likewise problematic. Under conditions of sustained expansionary fiscal policy, it could serve as a convenient instrument for financing deficit budgets.

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A considerable number of domestic citizens and foreign investors appear to have joined the trend of won depreciation (dollar appreciation), and the reason seems to be a lack of confidence in the future of the Korean economy. In an environment of sharply declining potential growth, the prevailing perception appears to be that, even as deficit budgets are drawn up, more money is being lost to populist spending than is being channeled into concentrated investment in future growth engines.

If the government is to secure the justification and legitimacy for imploring the public to increase the domestic equity allocation, commensurate measures must accompany the appeal.

It must provide credible assurance of a return to sound fiscal management. If the government seeks merely to exploit the National Pension as a temporary stopgap without enduring the pain of tightening its belt, it may fail to contain the elevated exchange rate while imperiling the public's retirement security in the bargain. The government must lend an ear to these concerns.

Ultimately, the recent sharp rise in the exchange rate is not a mere market fluctuation but a structural problem in which government policy is losing the market's confidence—and, on that account, the chorus of voices calling for a substantive and sustainable policy shift is growing louder.

Meanwhile, the Ministry of Health and Welfare's push for the issuance of foreign-currency bonds by the National Pension appears set to become yet another source of controversy.

The issuance of foreign-currency bonds by the National Pension is interpreted as one of the measures aimed at stabilizing the won–dollar exchange rate.

However, foreign-currency bonds are in the nature of debt and may depress the National Pension Fund's investment return; the controversy that the National Pension—the retirement savings of the Korean public—is being directly mobilized to defend the exchange rate is likewise expected to intensify.

https://www.ajunews.com/view/20260217192020711#_enliple