In Conversation With Lee Myung-bak
The Wall Street Journal sat down with President Lee Myung-bak on Friday to talk about the euro zone debt crisis, the coming G-20 summit in France and Seoul’s policy on North Korea among other topics. Following are some of the highlights of the conversation.
Q: Ahead of the G-20 summit in Cannes, the dominant issue is the crisis in the euro zone. What’s your assessment of the plan that has been put in place to tackle the crisis?
A: It is fortunate that the EU leaders had a summit and were able to reach an agreement. Now they should work out detailed plans and put them into action immediately. Even if the Greek problem is resolved, questions remain about whether that would mean the end of the crisis. It is of paramount importance to identify any other risks and prepare against them in advance.
Unlike the financial crisis in 2008, this is a fiscal crisis and governments have different capabilities in fiscal spending to boost their economies. So it’s hard for all the countries to work out a common and concerted strategy to deal with the crisis.
Each country [in Europe] faces its own challenges and there are also problems such as how much pain they can take to ensure a sound fiscal standing and how to persuade their people of the need for tough steps. So, despite the decisions at the European summit [Wednesday], there remain dormant risks and there are concerns that the crisis could be protracted.
Q: You said this is a fiscal crisis, but banks are being affected. Could this turn into a financial crisis?
A: Fiscal crises often turn into financial crises, dealing a blow to the real economy. Fortunately, the financial situation in emerging-market economies, and South Korea as well, is relatively good. Unlike Europe, there has been no state assistance to the financial sector in those countries. In that sense, the current fiscal crisis won’t likely escalate into a financial crisis. Talking about Korea, it has pretty high capital ratios at banks and maintains a good credit rating.
Q: You’re heading to the G-20 summit in Cannes, France. What is the G-20’s role in resolving euro-zone crisis?
A: The role of G-20 is to support the global economy to achieve strong, sustainable and balanced growth. To do that, several measures such as restructuring international organizations are currently being carried out. At the G-20 summit in Cannes, the crisis in Europe will be the most urgent topic. We will do our best to come up with plans to help stabilize the European situation. We’ll discuss measures to that purpose and there will be an announcement.
Q: What substantive results can we expect from the G-20 summit?
A: We will have very serious, in-depth discussions. But for now, I can’t say clearly whether we will be able to come up with concrete results. There’s also the G-20 finance ministers’ meeting. Let’s see.
Q: At times of crisis, investors tend to pull money out of Korea. The markets here were very volatile during September. Does anything more need to be done to prevent sharp swings in capital?
A: Let’s get straight to the conclusion. We don’t have an immediate plan to take any additional steps. The domestic financial markets are now stable. It is true that Korea is easily affected by external crises because its capital market is open and the economy is heavily dependent on exports. That’s why we’re also well prepared in terms of meeting challenges. Our foreign-exchange reserves are ample. Capital at banks is also good. More importantly, our export competitiveness is pretty high. In the past, Europe and the U.S. accounted for more than half of our exports. Now, advanced countries account for slightly above 20%. Our markets have become diversified and our companies’ competitiveness has increased. And while going through crises, we’ve tried to enhance our fiscal soundness. As a result, there’s not much of a real impact from the [latest] crisis. It’s rather psychological. To counter that, we’ve clinched currency swap deals with Japan and China. Seeking free-trade agreements is also one such move that can help ease market volatility.
Q: Would it be prudent to have a fresh currency swap deal in place with the U.S.?
A: During the financial crisis in 2008, we had currency-swap agreements with the U.S. as well as China and Japan. This time again, we recently had deals with Japan and China. I think we can also discuss this matter with the Federal Reserve in the future. But there’s no need now to push for it and there are no talks that are underway.
Q: Domestic economic policy since you took office has been hampered by global crises. You haven’t been able to achieve much in the way of privatization and structural reform. What do you think you’ll be able to achieve during the remainder of your term?
A: Since I took office, I’ve tried hard to enhance the nation’s competitiveness. I created a committee to that purpose under my direct control to help foreign investment in Korea and provide assistance to Korean companies. South Korea moved up to rank 8th in the World Bank’s assessment in October of business environment conditions. That’s very encouraging and an achievement for the government in enhancing the country’s competitiveness. Domestically, for now, price stability and job creation is the top priority for me. I’m focusing on that because that’s closely related to the lives of ordinary people. I’m emphasizing co-prosperity. We’re trying to narrow the gap between the rich and the poor, big conglomerates and small companies, haves and have-nots. We’re working on policy measures aimed at achieving a win-win for all in society. I’ll make efforts to achieve this goal until my term ends.
Q: Is a five-year single term a constraint in pursuing long-term policy goals?
A: This is an issue about the political system. The five-year single term presidency was created in the democratization process following the military regimes of the past. This system has been in place for only the past two to three administrations. So still there needs to be some research on it. Personally, I think the five-year single term has certain merits. The system allows me to carry out my duties in concentration and with full responsibility. I’ve noticed that in the U.S., when the president hits the three-year mark in office, he goes into re-election campaigning.
We have crafted more bills than past administrations to push for structural reforms [at companies]. We laid the legal groundwork for that and it’s bearing fruit. You may say there are few visible results for our efforts to privatize state firms. During economically difficult times, there are few buyers. But I’ll try my best to sell some stakes in state firms before my term ends.
Q: You’ve completed a number of FTAs. Do you have plans for any others, such as with China or Japan?
A: So far, we have free trade agreements with 45 countries. With China and Japan, we have agreed to start negotiations at appropriate times in the future. Free-trade agreements are very important to countries like us that depend a lot on exports. With free-trade deals, some sectors such as agriculture could face difficulties. But at the same time, it could provide an opportunity to enhance competitiveness. With free trade agreements, not with protectionist measures, you can create more jobs and revive the economy. I’ll emphasize this point at the upcoming G-20 summit.
Q: Can we expect FTAs with China and Japan anytime soon?
A: Feasibility studies have been conducted on pacts with China and Japan and preparatory work for negotiations is underway. Deals aren’t likely in the near future. But it’s not a matter of distant future either.
Q: As you go into your final year in office, do you feel any pressure to show progress in improving inter-Korean relations?
A: I’m approaching inter-Korean issues with a principle. We’re presenting them with ways of genuine rapprochement and cooperation between the two Koreas. I don’t intend to approach North Korea issues out of any political motives. We’re consistently saying that we’re open to talks with North Korea. We’re open to economic cooperation with North Korea as long as the North gives up its nuclear ambitions. We are not alone in this effort. Members of the six-party talks are also making efforts in that regard. I wish North Korea would make strategic decisions to bring peace on the Korean Peninsula.
Q: Is China doing enough on the North Korea issue?
A: It is true that China has maintained a special relationship with North Korea for a long time. But it is also true that China is demanding North Korea drop its nuclear ambitions and it’s making efforts in deterring the North from provocative acts against the South. China plays an important role in inter-Korean relations. We have maintained a close relationship with China not just in economic matters but also in other areas. We’ll continue to do so. China is not like what it was before. We expect China, as a G-2 country, to perform its role well, commensurate with its economic power.
Q: You were a student protestor during the military dictatorship period. What’s your assessment of the Occupy Wall Street protest movement?
A: There is a deep-seated anxiety among the younger generation about the future. When I was a demonstrator everyone was poor. But things have changed. The rich get richer and the poor get poorer. The gulf between rich and poor has been widened. Only a few benefit from economic prosperity. Opportunities aren’t given equally to everybody. There are hardly any jobs created. In some cases, jobs are taken away. Now is one of the hardest times for young people. The best way to instill hope is to create jobs.