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South Korea’s central financial institution governor has referred to as for a cap on college admissions from Seoul’s most upmarket neighbourhoods as a “drastic solution” to the capital’s runaway housing market.
Lower-throat competitors amongst dad and mom for personal examination tutors and college admissions coaches clustered within the unique Gangnam district is driving up home costs and borrowing, he mentioned, exacerbating inequality and accelerating the depopulation of provincial areas.
“The Korean education system is often praised by world leaders, but they don’t know the reality,” Rhee Chang-yong, governor of the Financial institution of Korea, advised the Monetary Occasions.
He added that top college graduates from Gangnam — the upscale Seoul district made well-known by pop star Psy’s 2012 satirical hit “Gangnam Style” — had been strongly over-represented within the nation’s high universities, decreasing alternatives for candidates from different areas.
“Rich people in Seoul send their kids from the age of six years to cram schools to start preparing for university, while female workers decide to stay at home just for their kids’ education. This fierce competition is harming the economy and making everyone unhappy.”
The BoK held off on reducing rates of interest final month for worry of fuelling additional borrowing. “Drastic solutions” had been required, Rhee mentioned, together with encouraging individuals to depart the capital.
South Korea was the primary large Asian economic system to boost rates of interest in response to surging inflation in 2021. The BoK has stored its benchmark fee at 3.5 per cent since early 2023, holding off on reducing charges regardless of hitting its 2 per cent inflation goal final month.
Rhee mentioned that whereas public debt-to-GDP remained comparatively low by developed world requirements at 45 per cent, South Korea’s family debt together with mortgages — which at 92 per cent of GDP is among the many highest within the developed world and hit an all-time excessive within the second quarter — was weighing on financial development.
“We have to show that the momentum on household debt is changing, and that the trend can and should be reversed,” mentioned Rhee.
Many specialists attribute South Korea’s collapsing fertility fee — the bottom on the earth — to pressures related to brutal competitors for restricted educational {and professional} alternatives at a small variety of prestigious excessive faculties, universities and corporations in and across the capital.
This yr, greater than 2.9mn individuals utilized inside a 48-hour interval to bid for a single condominium within the satellite tv for pc city of Hwaseong simply exterior Seoul. Actual property markets in different components of South Korea are characterised by vacant properties and depopulation.
“More than anything else, our demographic situation keeps me up at night,” mentioned Rhee, including that the nation wanted to draw extra overseas employees.
Rhee mentioned the BoK anticipated the South Korean economic system to develop 2.4 per cent in 2024 and a couple of.1 per cent in 2025, towards an estimated potential development fee of two per cent.
However he expressed concern that the nation’s development mannequin, which is predicated on manufacturing and depends on its main industrial teams, was working out of steam.
“We are so accustomed to the way we were successful in the past,” mentioned Rhee. “Now I feel our horse is tired and we need to switch to a new horse, but people say: ‘Oh, this horse has been running so fast and so well, why do we need to change it?’”
The central financial institution governor, who additionally serves as chair of the Financial institution for Worldwide Settlements’ committee on the worldwide monetary system, mentioned policymakers had but to achieve a consensus on whether or not the unwinding of the “yen carry trade” that destabilised markets final month was full.
However talking from the BIS’s base in Basel, he mentioned the August sell-off had “clearly demonstrated that we need to strengthen our data collection on derivatives and swaps”.
“The other lesson is just how quickly money can move,” he mentioned. “In Korea, for example, it was institutional investors leading sell-offs but retail investors who drove the rebound with money they borrowed using their smartphones. That has clear implications for financial stability.”
