President-elect Lee Pursues
Business-Friendly Policies

Focuses on government reorganization and privatization of state-run enterprises

The next government led by President-elect Lee Myung-bak is unveiling a series of business-friendly measures in favor of the family-owned major conglomerates or chaebols. The transition committee has embarked on a plan to privatize the state-run Korea Development Bank (KDB).
The plan comes as part of efforts to ease the rules regarding the separation of financial and industrial capital that prohibits major businesses from bank ownership as a means to prevent the concentration of economic power in the hands of a few businesses. It has also been moving to abolish the equity investment limit to promote investment by major business groups.
The equity investment ceiling system was first introduced in 1986 to prevent chaebol subsidiaries from investing more than a certain portion of their capital in sister firms. The system was designed to prevent chaebol owners from strengthening their grip on subsidiaries and excessively expanding their business scope.
Some people worry that the abolition of the current system will lead to a solidification of the current chaebol system, unless there are measures to avoid possible adverse impacts. They cited the need for chaebols to exert more efforts to enhance transparency in their management and ownership.
The transition team has cited the need to remove barriers to investment. It also said the current system is not found in other developed nations. The system was abolished once in 1998 but revived again in 2001. Statistics show that investment by conglomerates only began to increase in 2001, indicating that the investment ceiling system was not a major obstacle.
The Citizens Coalition for Economic Justice has claimed family-owned chaebol groups have been insisting on removing the system to fortify their hold on management.
President-elect Lee has been stressing that his new government will pursue business-friendly policies. He made a series of visits to business organizations such as the Federation of Korean Industries (FKI) and the Korea Federation of Small and Medium Business to demonstrate his unswerving will toward that end.
People have been supporting such policies including the decision to privatize the KDB, which will result in the transformation of some state-run companies including the Korea Housing Corporation and Korea Expressway Corporation from government-owned to private firms as the bank holds the largest shares in the companies.
Some experts stress the need for a cautious approach in dealing with the equity investment ceiling system. The Korea Development Institutes earlier forecast that chaebol owners may attempt to solidify their managerial rights through further investment should the present system be removed.
Although the people elected Lee, it does not necessarily mean they back all his policies. The transition team has been pondering and discussing the matter for the sound future development of the economy. The next government efforts come at a time when the people are sick and tired of the emperor-like management style of some chaebol families.
In another bid to speed up reform and recuperate the economy, the next government unveiled its government reorganization plan, which features the abolition of five ministries. In the plan, the Unification Ministry, Maritime Affairs and Fisheries Ministry, Information and Communication Ministry, Gender Equality and Family Ministry, and Science and Technology Ministry, along with the Government Information Agency will cease to exist, while the Ministry of Planning and Budget will be absorbed by the Ministry of Finance and Economy.
The plan, designed to slim down the number of government organizations, is in line with President-elect Lee Myung-bak's pursuit of a smaller but more effective government.
Lee said during a New Year press conference that the government should initiate change and that his primary task is to make an efficient and capable administration. He underlined the need to trim and screw tight the hitherto lax government apparatus.
The reform move, however, has faced fierce resistance from ministries subject to realignment. They have staged rallies and even threatened a campaign of disobedience, armed with many statements in defiance of the restructuring plan.
The reorganization bill will be submitted to the National Assembly for endorsement at the end of this month. There is high possibility that the affected ministry officials will intensively lobby lawmakers to prevent their organizations from being abolished.
The pro-government United New Democratic Party (UNDP) has so far maintained a cautious attitude toward the government restructuring plan. It is opposing the idea of doing away with the Unification Ministry, in particular, as well as the science and information ministries.
Most people support the idea of a smaller but more efficient government as President-elect Lee promised during his campaign. Observers note there should be no behind-closed-doors deals over the restructuring program ahead of the incoming general elections in April.
They note the transition team decided to put the Unification Ministry on the chopping block to utilize it as a bargaining chip in inducing the UNDP's cooperation for passage of the restructuring bill.
Experts have said what is most urgent for the next government is to take follow-up measures to minimize any possible adverse impact on state administration in the wake of the realignment.
The committee is seeking to allot the work of the eliminated organizations to the proper ministries at the earliest possible date. For one thing, it plans to consider the possible negative effect on inter-Korean relations if the Unification Ministry is merged into the Foreign Affairs and Trade Ministry.
There has been rising concern that the possible abolition of the science and information ministries will lead to a decrease in national competitiveness in the information and technology areas. So, the next government is poised to take proper steps to prevent such a scenario.
It plans to mobilize all possible efforts to decrease the number of civil servants along with the restructuring drive. Reform without self-sacrifice will amount merely to slogan shouting that may fall on deaf ears. More public officials means more regulations and weaker competitiveness.
President-elect Lee has promised to remove rules restricting investment in the financial industry, saying improving the regulatory environment is crucial to raising the industry's global competitiveness.
During a meeting with chief executives of banks and major securities and insurance companies, Lee reaffirmed his goal of making the country a financial hub in Northeast Asia, saying he is ready to help financial firms.
"The financial industry has made leaps forward, but it still has a long way to go,"Lee said. "On the global stage, local firms are still not in strong positions, and I'm thinking about how we can take the industry to a higher level. I know we should change the environment first."Lee said stronger financial firms can create more and better jobs and that their role is significant in achieving strong economic growth.
Lee promised to ease or remove regulations to attract more investment into the financial sector and strengthen communication between private companies to meet their need for a better business environment.
It was the first time that the President-elect met CEOs of financial firms since former President Kim Dae-jung in 1998.
Lee has stressed the need to sell government stakes in state-owned financial firms to private rivals.
The presidential transition team said the next government is seeking to combine Korea Development Bank's investment banking unit with Daewoo Securities and then sell it to private investors. It also plans to reform other state-owned lenders like the Export-Import Bank of Korea and the Industrial Bank of Korea.
In a bid to strengthen competitiveness of the financial sector, Lee pledged to ease rules on conglomerates'ownership of banks. Under the current law, non-financial companies are banned from owning more than a 4 percent stake in a bank. The law is aimed at keeping chaebol from controlling banks.
Participants of the meeting included Kookmin Bank CEO Kang Chung-won; Shinhan Financial Group Chairman Ra Eung-chan; Woori Bank CEO Park Hae-choon; Hana Financial Group Chairman Kim Seung-yu; Korea Exchange Bank CEO Richard Wacker; Citibank Korea CEO Ha Yung-ku; and SC First Bank CEO David Edwards.
Representing the brokerage and insurance industries, Daewoo Securities CEO Kim Sung-tae; Korea Investment & Securities CEO Ryu Sang-ho; Mirae Asset Management Chairman Park Hyun-joo; Samsung Life Insurance CEO Lee Soo-chang; and Kyobo Life Insurance CEO Shin Chang-jae met with Lee. nw

President-elect Lee Myung-bak poses together with Korean conglomerate heads during a meeting organized by the Korean Federation of Industries in Yeouido on Dec. 28. (right photo) President-elect Lee presides over a meeting of his government transition team.