President Lee Needs
Support From All Parties

NK nukes, financial crisis pose challenges

President Lee Myung-bak has been embattled by a series of difficulties since the moment he took office in February.
Despite his pledge to push the nation to the level of a highly advanced one through a prospering economy, it seems the Chief Executive has been forced to lower his expectations in the face of the growing financial crisis coupled with the increasing threat involving North Korea's nuclear programs.
Lee has been pursuing the economy-first policies, given his career as CEO of a major construction firm, which certainly enabled him to garner the support of the majority in the presidential elections in December last year.
But his ambitious pursuit of such growth-oriented policies has run into a wall with the outbreak of a financial debacle triggered by the subprime mortgage crisis in the United States.
Experts are of the notion that the current crisis will not be solved for at least two to three years given the seriousness and depth of the problems.
Aware of the significance, world leaders began to wrack their brains to come up with a package of measures to help find a solution to the financial crisis.
Following the lead of the global move to cope with the market's turmoil, the Korean government also decided to provide guarantees on bank'sforeign currency debts from overseas, up to $100 billion, until June next year as part of efforts to encourage an inflow of dollars to stabilize the local currency market.
The Bank of Korea (BOK) will purchase foreign exchange stabilization and other state bonds to boost the won't supply, as well as draw an additional $30 billion from its foreign reserves to inject into the banking system, in addition to $15 billion already provided.
In a joint press conference in central Seoul, the Ministry of Strategy and Finance, the central bank and the Financial Services Commission (FSC) announced these and other measures aimed at minimizing the negative fallout from the ongoing global financial turmoil on the local market.
First, the government will guarantee foreign currency borrowings by domestic lenders
up to $100 billion from today through June 30, 2009, to help them raise funds abroad and bring in dollars. The state guarantee will be valid for three years from the time a loan is taken out.
Until the government gets approval from the National Assembly, the state-run Korea Development Bank and Export-Import Bank of Korea will guarantee local banks borrowing from overseas.
"We decided to provide loan guarantees of up to $100 billion as foreign borrowing by domestic banks that will mature through June next year totals $80 billion. We are positive that the measure will encourage foreign lenders to roll over or renew loans extended to local banks, which will minimize the use of our foreign exchange reserves,"Strategy and Finance Minister Kang Man-soo said.
Separately, the BOK plans to inject an extra $30 billion into the banking system out of its currency reserves, while increasing the won's supply by purchasing state bonds, as many banks and small companies are facing increasing difficulties in securing funds.
Early this month, the finance ministry pledged to inject $10 billion into the domestic currency swap market to supply dollars to banks and other financial institutions. It also provided $5 billion more to small and medium-sized companies through the Export-Import Bank of Korea.
BOK Governor Lee Seong-tae stressed that the central bank will do its part in having a sufficient amount of the local currency available so that financial institutions and small firms have little difficulty in securing funds.
Additionally, the FSC plans to allow a tax deduction of up to 12 million won per year for people investing in long-term equity funds to encourage investors to put more money into stocks for a longer period. "Because of the tax deduction benefit and other tax incentives regarding indirect financial instruments in stocks and bonds, we expect an additional 1.3 trillion won to flow into the market,"FSC Chairman Jun Kwang-woo said.
The government will also infuse one trillion won into the Industrial Bank of Korea to help it extend more loans to small-and medium-sized enterprises that are having difficulty in borrowing money.
But it decided not to increase the ceiling on deposit guarantees from the current 50 million won per person at each deposit-taking institution, saying that current market conditions are not serious enough to require such an emergency action. The United States and many other countries have expanded the deposit guarantee cap to preclude bank runs.
On the global front, the government plans not only to promote multinational collaboration among G-20 countries, but also to reinforce regional ties involving Korea, China and Japan.
Minister Kang said the government will make efforts to expand bilateral currency swap schemes to G-20 countries and finalize detailed plans for the realization of the Chiang Mai Initiative by the end of 2009.
The government also plans to unveil a stimulus package, including tax cuts, interest rate cuts as well as a bailout program for troubled construction companies.
In addition to the financial issue, President Lee also needs to cope with the growing uncertainties surrounding North Korea and its leader Kim Jong-il.
Inter-Korean relations have soured to a much greater degree since the onset of the current administration, which has been trying to separate it from the previous government regarding North Korean policies.
There has been speculation that North Korean leader Kim might have been ill to the extent of being unable to carry out the administration of state affairs. Japanese media recently reported that North Korea will make a grave decision sooner or later for which it has placed all of its diplomatic missions on standby.
Given the challenges mentioned above, Lee needs support from all parties concerned including the opposition Democratic Party. Toward that end, he needs to exercise leadership by embracing all forces. nw

President Lee Myung-bak presides over the first economic consultative meeting at Cheong Wa Dae with representatives from various walks of life designed to brainstorm ways to tide over current economic difficulties on Oct. 20.
President Lee chats with participants of the first economic consultative meeting.

CEO of Korea Hydro & Nuclear Power Co.