[Outlook]Not listening to Lee
On Nov. 18, President Lee Myung-bak presided over a cabinet meeting via video conference call from Brazil. From the other side of the world, he discussed current issues with ministers in Seoul and issued orders. The conference call was not conducted through a satellite, but over the Internet. It was the first time a Korean president had ever conducted a cabinet meeting from overseas.
The Blue House promoted the fact that the president would be taking care of state affairs amid the economic crisis, despite being out of the country. The production was meant to give the impression that Lee understands information technology and uses it well.
The Blue House gave a detailed explanation of what bills the president signed on that day. He handled 61 cases, including 48 bills such as a revision of the food and hygiene act. One bill would allow state universities to do for-profit business with their development funds. Another was to ease regulations for registration as a landlord. The issues dealt with didn’t seem so urgent that the president had to hurriedly handle them while out of the country.
The meeting was a display of the fact that a cabinet meeting can be held even when the president is abroad. It can be regarded as an interesting occasion in the era of information technology. The president is a politician after all, and politicians need showmanship. If the audience - the public - was satisfied, the fact that civil workers and public employees had to stay up for several nights preparing for the meeting can’t be mentioned as a problem.
The real problem was that the content was not as cutting-edge as the package. The president appeared on the screen and ordered Jun Kwang-woo, the chairman of the Financial Services Commission, to take measures to reduce interest rates in the market along with the Bank of Korea’s rate cut. The day before, in a radio address in Washington, Lee asked Korean banks to supply low-interest capital to where it is needed, as if requesting that dry rice paddies be supplied with water.
As he used to be a CEO, I expected the president to have a good understanding of market principles. But those expectations fell short long ago, when he ordered that the prices of basic necessities be maintained shortly after he took office. Finance Minister Kang Man-soo made a list of 52 items, but it was meaningless after 10 months. Prices of most of the items went up for a variety of reasons, such as increases in raw material prices or the foreign exchange rate. Sugar was an exception, but now its price is to increase by 15 percent in three days.
MB-nomics aren’t getting the job done. Interest rates won’t go down and banks won’t lend out money more easily just because the president says they should. But Lee still doesn’t change. In three radio addresses, he encouraged banks to lend money to small and midsized firms.
There is a reason why banks aren’t lending money. They believe that there is a high risk that they won’t get the money back. Banks are in the wrong in that they managed their capital in a lax way during the good times. When they had plenty of liquidity, they searched for people to lend money to, and gave low-interest loans. They made risky investments in foreign banks. Once the crisis began to loom, they all started to ask for their money back. This practice was criticized, but that is a natural trait of banks. When they have good liquidity flow, they want to make a profit from it, and when they are in trouble, they want their money back.
The administration can’t punish banks as it did in the past. But the words that were used when the government intervened in banks’ business are now being heard again. If companies need to borrow urgently, the right circumstances should be prepared. It doesn’t work to yell at a bank to take risks when more than 50 percent of shareholders are foreigners.
The government must step up and ease burdens. It should guarantee that if loans default, the administration will pay them back from the Credit Guarantee Fund. State banks, such as Korea Development Bank, Industrial Bank of Korea and Woori Bank, should be used. If Bank of Korea Governor Lee Seong-tae is too busy working for the independence of the central bank to carry out his duties, necessary measures should be taken.
If the president repeats orders and they are not followed, his power weakens. In a span of one month, the president criticized banks six times. What’s worse is to order them to supply capital with low interest rates, when banks avoid giving out loans regardless of the rate.
The president’s remarks give the impression that he believes all companies must be revived. That is simply impossible. Unhealthy companies must be left to die. Only then will money go to companies with potential. Are the presidential aides not saying anything, or is the president just covering his ears?
The writer is the economic news editor of the JoongAng Ilbo.
by Shim Shang-bok