South Korea’s top financial and monetary policymakers have recently given the impression of pushing each other to assume a more active role in propping up the fourth-largest economy in Asia.

Finance Minister Yoo Il-ho said earlier this month the country has room to use more monetary policy, though he conceded he is not in a position to ask the central bank to lower its key rate.

In an interview with a foreign news outlet in Washington where he was staying to attend the annual conferences of the International Monetary Fund and the World Bank, Yoo also noted Korea’s household debt is “still manageable at this point” in terms of size and quality.

His remarks were met with a negative response from Bank of Korea head Lee Ju-yeol, who was also attending the meetings of the global lending institutions.

The BOK governor told Korean correspondents that it is necessary to take a cautious approach with monetary policy given that low interest rates have led to a build-up in financial risks including high household debt.

Lee suggested Korea has more space for fiscal expansion.

“The government has tried to implement expansionary fiscal policy but Korea’s fiscal soundness still remains in the world’s top class,” he said.

In a meeting with Korean reporters later, Yoo said there is little room to expand fiscal spending, noting the government has drawn up a supplementary budget for this year and plans to increase budgetary expenditure next year. He went on to mention the need to curb fiscal deficit.

BOK head Lee seemed to be trying to subdue concerns about the surfacing rift between him and the finance minister last week when the central bank announced its decision to leave its policy rate unchanged at a record low of 1.25 percent.

“It is evident that our country has more room in terms of both fiscal and monetary policies than other nations,” he said.

The top central banker contended he had no fundamental difference with Yoo in perceptions of Korea’s economic conditions. He added a judgment on how to harmonize fiscal and monetary policies will be made in consideration of the financial and economic environment ahead.

Many economists, however, see that the BOK is unlikely to meet demand for further easing its stance in the coming months amid concerns over the country’s high and rising household debt and a possible US interest rate hike.

Korea’s household debt exceeded 1,250 trillion won ($1.09 trillion) in June when the BOK last cut the rate. Over the past months, household debt has increased at a steeper pace.

BOK officials also feel the need to prepare for a US rate increase possibly in December, which they say might have a significant impact on Korea’s currency and equity markets.

A discord between financial and monetary authorities over a proper policy mix is the least desirable for the Korean economy, which is struggling with declining exports and weakening domestic consumption.

Uncertainties surrounding the economy have been heightened by ongoing restructuring of debt-ridden companies, recent problems at Korea’s two biggest manufacturers -- Samsung Electronics and Hyundai Motor -- and a strict anti-corruption law that took effect last month.

The BOK last week joined local private research institutes in becoming more cautious about the prospect of the Korean economy by cutting the growth projection for next year by 0.1 percentage point to 2.8 percent. The Finance Ministry expects a 3 percent increase for 2017.

It seems to be a prevailing view among economists that Korea has more space for fiscal policy with monetary tools having reached limits in helping stimulate the economy.

“It is right at the moment to put more emphasis on fiscal roles to prevent the economy from being drawn deeper into downturn,” said Hong Joon-pyo, a researcher at the Hyundai Research Institute.

Korea’s ratio of government debt to gross domestic product stood at 41.8 percent last year, according to data from the Ministry of Strategy and Finance. The figure was far lower than the average of 115.2 percent for 27 members of the Organization for Economic Cooperation and Development that use similar accounting practices. The comparable numbers reached 110.6 percent for the US, 116.4 percent for the UK and 229.2 percent for Japan.

In a news conference in Washington early this month, IMF Managing Director Christine Lagarde cited Korea along with Germany and Canada as a few major economies that have room for further fiscal expansion.

Despite their repeated pledges to strengthen fiscal roles, financial policymakers have not done enough to give a significant boost to the Korean economy over the past years, critics say.

Since 2012, the government has increased budgetary spending by 4.6 percent on average annually, drawing up supplementary budgets in 2013, 2015 and 2016. But the ratio of government expenditure to GDP remained at 21.1 percent during the period between 2012 and 2015, a 0.2 percentage point decrease from the previous four years.

Experts note it is understandable for financial policymakers to be on alert over a steep increase in national debt in keeping with the rapid aging of population and demand for expanded welfare benefits. But they say bolder fiscal steps could be more effective than looser monetary policy in bolstering the economy, particularly if taken in the direction of helping support corporate restructuring and develop new growth engines.

By Kim Kyung-ho (khkim@heraldcorp.com)