Learning from Lee
The author is the editor-in-chief of the JoongAng Ilbo.
The entire global economy is facing a tsunami of bad news from the coronavirus outbreak. It is fortunate that Korea and the United States signed a $60 billion currency swap. “We must overcome all barriers. We must employ all possible resources and means,” President Moon Jae-in said in an emergency meeting at the Blue House.
The Moon administration must study the Lee Myung-bak administration’s successful handling of the global financial meltdown in 2008. When Lehman Brothers filed for bankruptcy, Lee said, “Cash is most important at times of crisis,” and ordered his officials to push forward a Korea-U.S. currency swap deal. Moon, who values justice and ethics — both abstract terms — lacks a realistic sense of the economy. He must admit his shortcomings to find a resolution.
In 2008, the Lee administration was initially dismissed by Washington. Finance Minister Kang Man-soo flew to New York and met with Robert Rubin, the Citibank advisor and former secretary of the Treasury, and Citibank Vice Chairman William Rose. The meeting was arranged by Ha Yung-Ku, Citibank Korea’s president at the time.
“It is unfair for us to suffer from a crisis triggered by the United States,” Kang told them. “If Korea sells off U.S. Treasury bonds for crisis management, there will be a reverse spillover.” Kang calmly persuaded — and pressured — them.
Rubin was persuaded, and Rose met with President of the Federal Reserve Bank of New York Timothy Geithner and told him about what Kang and Rubin wanted to do. After Geithner agreed “100 percent,” a $30 billion Korea-U.S. currency swap was announced on Oct. 30, 2008. It was the first economic alliance between the U.S. dollar and the Korean won. It was different in nature from the latest currency swaps that the Federal Reserve Bank rushed to sign with nine countries, including Korea, to prevent impacts on the U.S. economy from a series of expected global bankruptcies caused by the strong U.S. dollar.
At the time, Korea also signed $30 billion currency swap deals with China and Japan. Kang met with his Chinese counterpart, Xie Xuren, and persuaded him that the currency swap would be the first step for the Chinese yuan to become a world currency. Japan, which had been passive, agreed to sign a deal after Seoul and Beijing reached an agreement. The Moon administration must study how Korea was able to make the three powers its allies in a time of crisis.
Lee held 145 emergency economic meetings from Jan. 6, 2009 through December 2012. He hosted the meetings himself. When policies were proposed, Lee fiercely debated them with his aides. “I sometimes challenged him by saying that just because you are the president, it doesn’t mean you know everything,” Yoon Jeung-hyun, who served as finance minister in 2009, recalled. “Lee laughed and accepted my opinions. He was a magnanimous man.”
The Moon administration’s policies to tackle the crisis are being implemented too slowly. Less than 10 percent of the funds to counter the effects of the coronavirus outbreaks were spent over the past two months because the government could not feel the pain of the people. Meanwhile, Lee held as many as 62 meetings in the field. He announced a new policy of microfinance for the self-employed. Lee also ordered the head of the Board of Audit and Inspection to not punish public servants for honest mistakes.
Lee ordered his cabinet members to finish their briefings on next year plans by December 2008, although the briefings were normally scheduled from the early New Year till March. In 2009, budgets were being spent starting in January, and 64.8 percent of the budgets were spent during the first half of the year. The financial crisis in 2009 was overcome, and Korea recorded a 6.1 percent economic growth rate, far higher than the Organisation for Economic Cooperation and Development (OECD) average of 2.8 percent in 2010. The Financial Times, which predicted that the Korean economy would sink, had to admit that Korea got a perfect score for crisis management.
In times of crisis, you need to hire the best people. Lee hired Kang, Yoon and other top-caliber bureaucrats to secure the market’s trust. He also recruited top economists who were renowned in the United States. Immediately after the 1997 foreign exchange crisis, President Kim Dae-jung did the same instead of relying on his loyalists. President Moon must form a similar dream team for the economy in this crisis.
How he manages to overcome the current economic crisis will decide how Moon is judged by history after his term comes to an end. There should be no gap in supporting the vulnerable classes. The government must actively support the airline industry, just like the United States and European Union. His policies of rapid minimum-wage hikes and a 52-hour workweek should be slowed down. He must speed up deregulation to make Korea a leader in the fourth industrial revolution. He must abandon the nuclear phase-out policy, which took away Korea’s prestige in the global nuclear power industry and killed Doosan Heavy Industries.
Ironically, a crisis gives an administration an opportunity to radically change a failed set of policies. Moon said all resources and means should be employed. Humility is one of them and admitting failure. Although Lee could be a controversial leader, we must look back at his strategy to overcome the global financial meltdown. That is the way to survive the aftermath of the outbreak. If we make the best use out of the current crisis, Korea will be able to lead the world economy in this century.