02/22/2008

News / Out of the boardroom: Incoming president has bold vision for South Korea's economy

SEOUL, South Korea: Over 60 years, South Korea has been led by a tireless independence fighter, hard-nosed generals and dedicated advocates of democracy, human rights and reconciliation with communist North Korea.

Now, for the first time, a man who made his name in the corporate boardroom is about to become president of a country occasionally dubbed Korea Inc. for the influence big business has played in its development.

Lee Myung-bak, set to start a single five-year term Monday, inherits an economy that grew nearly 5 percent last year, boasts a bevy of world-class companies, and draws on a work force with a passion for education.

That would surely be the envy of many a new leader. But for the energetic former construction CEO with a reputation for achievement, bold ideas and grand projects, it is simply not good enough.

South Koreans handed the conservative Lee a landslide victory in December's election, buying into his argument that skills honed in business can rejuvenate an economy he says is underperforming.

A decade of liberal government has not ignored the economy — outgoing President Roh Moo-hyun, for example, has pushed free trade agreements — but emphasized political issues, such as engaging North Korea and seizing assets of descendants of collaborators during Japan's 1910-1945 colonial rule.

Under his "Economy, First!" motto, Lee has vowed to push economic growth to 7 percent annually, and over a decade double per capita income to $40,000 (?27,000) and make South Korea the world's seventh-largest economy, up from 12th now. Highlighting the key numbers in each of these goals, he has called this his "747" pledge, meant to evoke a soaring jumbo jet.

To make that happen, he has promised to shake up the country by slashing regulations, reorganizing government, pursuing more free trade agreements and revamping education to introduce more competition.

Lee has also promised to draw in more foreign investors and pay special attention to their complaints, which include inconsistent policy implementation, anti-foreign business sentiment among government officials and prosecutors and hard-line labor unions.

Pledged foreign direct investment into South Korea fell for a third year in 2007, dropping 6.5 percent to US$10.51 billion (?7.1 billion).

To show he is serious, Lee has brought in David Eldon, a former chairman of the Hongkong and Shanghai Banking Corp., the Asian arm of HSBC Holdings PLC, as an adviser and has even advocated allowing foreigners to hold government jobs.

Reaction in the business world to Lee's election has been, predictably, enthusiastic.

December's vote "was a landmark event, turning the political landscape in favor of deregulation, markets, and growth," Goldman Sachs economist Kwon Goohoon wrote last month.

To be sure, the 66-year-old Lee, nicknamed "The Bulldozer," knows the ways of politics, having served as a national legislator and mayor of Seoul.

But it was industry where he made his name, becoming the chief executive of Hyundai Engineering & Construction Co., part of the Hyundai conglomerate, at the precocious age of 35.

There he earned a can-do reputation in an era, the 1970s and 1980s, when South Korea's economy was growing by leaps and bounds, the country was aggressively developing its infrastructure and companies, including Lee's, pushed into overseas markets.

Lee's company led the building of a massive elevated highway that ran through central Seoul. Later, as mayor, he got it torn down to restore an ancient waterway.

That stream now flows gracefully through the capital, where it is seen as a symbol of how to balance development with the environment.

Big projects are a Lee trademark.

He advocates building a massive canal linking Seoul with the southeastern port city of Busan, which he says will spur the economy and boost tourism, but which critics counter is a potential boondoggle that could hurt the environment.

Lee is taking office at a delicate time, given worries about a possible recession in the United States, South Korea's third-largest trading partner, and how that could affect China and the European Union, its two biggest export markets.

The new president "faces a baptism of fire," Daniel Melser, senior economist for Moody's Economy.com, wrote this month.

Recurring corporate corruption scandals in South Korea, particularly among the country's huge industrial conglomerates, or chaebol, are another challenge.

Lee, himself accused of collusion in a 2001 stock price manipulation case, was cleared Thursday by an independent counsel. Lee denied the claims, which dogged him throughout the campaign.

While Lee's blueprint for growth may look ambitious, it fits easily into the psyche of a proud, driven nation that has thrived on overcoming challenges. Just 50 years ago, South Korea was one of the poorest countries in the world, far outpaced by its communist rival to the North.

James Rooney, president and CEO of Market Force Co., an Asia-focused investment and consulting firm, said the key for Lee to achieve and even exceed his goals is to focus on China, going beyond exports to areas like financial services and enticing its increasingly affluent citizens to visit South Korea for tourism, education and medical care.

"To put it simply, you've got a population of 1.3 billion," he said. "These are the passengers for your 747 jumbo jet."

Source: http://www.informationweek.com/news/showArticle.jhtml?articleID=206801184

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