Oct 31, 2008

World - South Koreans lose faith in president's business skills

Martin Fackler

SEOUL, South Korea: Many South Koreans have taken to blaming LeeMan Brothers for their nation's economic woes.

No, they do not mean the failed American investment bank Lehman Brothers. Rather, they are making a play on the names of South Korea's president, Lee Myung-bak, and his finance minister, Kang Man-soo, whom many here criticize as handling the recent market turmoil inconsistently.

Dubbed the CEO President, Lee swept into office in February promising to use his business acumen as a former construction company executive to revive the nation's economy. Instead, he stumbled from the start, and now finds himself fighting to regain credibility as South Korea, buffeted by the global financial turbulence, careens unsteadily toward a recession.

On Thursday, his government seemed to get a much-needed boost when the United States Federal Reserve agreed to open credit lines worth up to $30 billion to South Korea to alleviate a shortage of foreign currency that has hobbled its banks.

Still, critics say Lee and his cabinet responded slowly to the crisis, which has struck South Korea and other emerging market nations with a vengeance. The country's stock market and its currency, the won, have been down more than 30 percent this year, though they gained some ground on Thursday. Critics also say Lee's government sent confusing and even contradictory signals at a time when communication was crucial for restoring confidence.

But supporters say much of that criticism is unfair, given that the crisis originated in the United States. They also say that Lee is starting to find his stride, coming up with tax cuts and public money to stem the crisis.

Backers and opponents alike agree that Lee still has a battle ahead to win back the faith of South Korea's often fickle public, which turned against him soon after he took office because of a trade deal resuming American beef imports. "He is still struggling to live down the beef fiasco," said Jasper Kim, a professor of international relations at Ewha Women's University in Seoul. "The public's loss of faith has hung over him during this financial crisis."

Lee still appears to have a long way to go in regaining that trust. An Oct. 20 opinion poll showed 24 percent of Koreans supporting Lee, and 31 percent approving of his handling of the economic crisis. That is up from an approval rating of 15 percent in June, when Seoul streets were filled with huge candlelight vigils against the American beef deal. The margin of sampling error was plus or minus five percentage points.

"People had high expectations of Lee Myung-bak with his image as being the economic president," said Yoon Hee-woong, a researcher at the Korea Society Opinion Institute, which conducted the polls. "People got disappointed because they have yet to see the government perform."

After first playing down the threat, Lee changed his tune, saying last week that the financial crisis was worse than the crash of 1998, when the won plummeted. He has also taken measures aimed at shoring up the banking system and the broader economy, including cutting taxes, approving $4 billion in spending to stimulate construction and pledging $130 billion to ease banks' foreign currency shortages.

On Monday he made a rare address to the National Assembly, warning South Koreans to "pull together their strength and wisdom again," a reference to the nation's recovery from 1998.

"President Lee was slow to realize the seriousness of the crisis," said Kim Jung-sik, an economics professor at Yonsei University in Seoul. "But he realizes it now."

Still, the perception remains that Lee and his ministers have been inconsistent on important economic issues and particularly on currency policy. The finance minister, Kang, initially backed a weak won to bolster exports. However, when that led to politically unpopular price increases for imported oil and other commodities, the government intervened to jack up the currency. When financial markets started tumbling last month, the government appeared to change again, not intervening to halt the won's fall.

Critics say Lee's administration has also appeared inconsistent on another crucial issue, foreign reserves. The administration has said that South Korea holds enough dollars to repay all its loans from overseas, but has also urged companies and individuals to help the nation by exchanging their dollars for won.

"One day, he says we're O.K. The next day, he says we are in trouble," said Dr. Lee Geun, a professor of international studies at Seoul National University. "His flip-flopping has been very confusing."

Analysts say the president badly needs to appear effective during the current crisis, after the setbacks on his major economic initiatives so far. The slowing economy makes it unlikely that he can deliver on campaign pledges of achieving 7 percent growth and a doubling of average annual incomes to $40,000. A former chief executive of Hyundai Construction, he has also shelved for now his pet project of building a 336-mile canal across South Korea.

"Lee Myung-bak has not had a single big policy success so far," said Lee of Seoul National University. "He needs something to show."

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