Is South Korea Going "Neoliberal"?

♠ Posted by Emmanuel in , at 2/01/2008 07:19:00 PM
If nothing else, South Korean President-Elect Lee Myung-Bak has chosen a very odd time to chart a market-driven course for his country. Just as well-known FT pundit Martin Wolf has called the subprime fiasco "a huge blow to the credibility of the Anglo-Saxon model of transactions-orientated financial capitalism," Lee looks set to put his country on such a course. Weird. Just when you thought state-led development was all the rage with the US and UK biting the dust and East Asia on the rise, you get this. From the Wall Street Journal:
South Korean President-elect Lee Myung-bak said he wants to turbo-charge the nation's economy by tossing out the old government-led growth model and embracing more competition and foreign investors.

Now comes the big test: Just what does Mr. Lee consider as appropriate foreign investors?

In an interview on Friday with a small group of reporters -- the first since he was elected in December -- Mr. Lee laid out who he considered welcome and unwelcome.

Those who take part in managing a company are welcome, said the 66-year-old Mr. Lee. However, he added, there are others who only invest in a company and "sell their stake when the stock price goes up. It's an investment for the sake of simple capital investment." Such investors could be restricted "without [such restrictions] being so excessive that they serve as obstacles for foreign investors," he said. (See excerpts from the interview.)

Mr. Lee's cautious response shows the tightrope he must walk as he prepares for a five-year term that starts later this month. The former construction-industry executive and onetime mayor of Seoul won by a wide margin after he promised to speed up South Korea's economic growth by deregulating coddled industries and introducing a raft of pro-business policies.

But he also faces a nation that's used to achieving fast growth through central planning and is nervous about an economy that is left to its own devices. In particular, many South Koreans are sensitive to foreigners whose priority is making money, as Koreans are taught to place importance also on the well-being and growth of the country. Under the current president, Roh Moo-hyun, foreign investment slowed and the government put the brakes on profitable transactions by foreign investors. The highest-profile such case, U.S. investment fund Lone Star Funds' attempted sale of its stake in a Korean bank, took a turn today when a judge found Lone Star's South Korean head guilty in a stock manipulation case and sentenced him to five years in prison. Regulators have cited the case as a reason to hold up the stake sale.

Mr. Lee faces mounting challenges ahead. While the economy grew at a robust 4.9% last year, South Koreans are increasingly anxious because they feel growth has slowed from the go-go years of past decades, during which South Korea emerged as a top exporter of steel, autos and electronics.

Meantime, faster growth may be harder to achieve amid rising concerns that a slowdown in the U.S. economy would weigh on the rest of the world. South Korea may be particularly vulnerable because it is dependent on exports, and the U.S. is a major market.

South Korea's strong exports of industrial products to China provide it with another of engine of export growth -- but China is also emerging as a rival in world markets in areas such as shipbuilding. Amid global financial turmoil, South Korean shares have dropped more than 13% since the beginning of the year...