Korea’s $1.6 trillion man faces a giant bubble that presidents avoid

South Korea’s economy is in a strange state of flux as we wait for its new leader to be sworn in. Not President-elect Yoon Suk-yeol, but Rhee Chang-yong, who was named head of the Bank of Korea.

Rhee is not a done deal. The Asia-Pacific director of the International Monetary Fund has yet to be confirmed. Still, there’s a good chance Rhee will move into his new office at the BOK’s headquarters in downtown Seoul later this month. Next, he will take on the management work of Asia’s fourth-largest economy.

If Yoon, who enter the Blue House May 10, thinks it’s his job – or that of his People Power Party – he hasn’t paid attention to Seoul’s political dynamics for the past 15 years. Through a combination of political stalemate and chronic coyness, Korea’s last three leaders have essentially outsourced the job of improving the fortunes of 52 million people to the central bank.

Take Moon Jae-in, who will hand over the presidential baton to Yoon next month. In 2017, Moon took office with grand plans to remake Korea’s rigid and often uncompetitive economy. Chief among them: an experiment in “trickle down economy” that wrests power from the family conglomerates that dominate the nation.

Yet Moon saw the magnitude of the task, hesitated, and left economic management duties to the incumbent BOK governor. Lee Ju-yeol. It was a familiar situation for Lee, who has held the reins since April 2014. At the time, it was Moon’s predecessor, Park Geun-hye, who phoned BOK headquarters.

In February 2013, Park assumed the presidency, speaking forcefully of building a more “creative” nation and “democratizing” the economy. This involved knocking family conglomerates, or “chaebols, down a few pegs to make way for a startup boom.

Instead of disrupting Korea Inc., Park was co-opted. In 2017 she was deposed and imprisoned in a corruption scandal involving the biggest chaebol of them all, Samsung. Also imprisoned for a spell for his part in the controversy was the descendant of the The Samsung EmpireJay Y. Lee.

Now that Lee is free again, the new President Yoon will also be at the mercy of the Lee family dynasty. Rhee’s team at the BOK will operate the economy trains, but it is Lee and his chaebol peers who hold most of the power.

Could Yoon be the Korean leader who finally clipped the wings of the chaebols? It’s impossible to say. But he is the fourth president to win election as a self-proclaimed reformer ready to shake up the status quo.

Before Moon and Park, Lee Myung-bak (2008-2013) came and went with a few structural improvements to his name. Most of the time, history will remember Lee for also being convicted of corruption.

Fortunately, the BOK was hard at work because all this political intrigue was preventing the elected leaders from doing their job. Prior to Lee Ju-yeol, Governor Kim Choong-soo led the BOK with great distinction, from 2010 to 2014. Kim’s maneuvering on interest rates, like those of Governor Lee after him, managed to ward off the BOK. Korean rock economy.

Before Kim, Governor Lee Sung-tae did his share of shrewd crisis management during the Lehman Brothers crisis in 2008. At the time, many short-sellers were betting that Korea would become the next Iceland. Instead, the BOK helped the nation sidestep the crisis and confuse opponents.

In 2013, during Kim’s tenure, Seoul avoided the worst of “conical tantrum” devastating emerging markets. More recently, Lee Ju-yeol’s team helped the nation navigate the trauma of Covid-19 in 2020. In late 2021, the BOK became the first major central bank to start raising rates, a sign that Korea was exiting the world of the pandemic period. .

Of course, Rhee will have his work cut out for him as pandemic risks collide with soaring global inflation and geopolitical shockwaves from Russia’s invasion of Ukraine.

The good news is that Korea is better positioned than all the other top 12 economies to weather a particularly uncertain year. the Asian Development Bankfor example, sees Korea grow 3% this year.

The bad news is that Korea’s large but open economy faces a wildcard bull market as global headwinds rush in. At the same time, China, by far the biggest market for Asian products, is facing new waves of Covid-19 infections. And the fallout from President Xi Jinping’s crackdown on big tech and property developers is backfiring on China’s gross domestic product.

If President-elect Yoon wants to break the cycle, if he wants to put big reforms that increase Korea’s dynamism and raise living standards on the scoreboard, he will have to get to work.

Already, however, Yoon seems more interested in foreign police— relations with China, North Korea and the United States — than domestic retooling. These are very important and understandable goals. But none of these activities will disrupt a system dominated by a handful of massive family businesses that accumulate power. Yoon’s”anti-feministThe campaign suggests he is the man who fully empowers half the nation.

Yoon also lacks a clear plan to reduce record household debt which accounts for more than 106% of Korea’s GDP. Figuring out how to reduce this unsustainable accumulation has baffled recent governments, making Rhee Korea 1.6 trillion man. If the presidents do not tackle this bubble, it falls to the BOK to maintain financial peace.

This means that, in all likelihood, Rhee will run the show for the Blue House, just like the last three BOK teams. That’s fine for 2022, but it won’t answer questions about where Korea will be in 10 years.

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