When Lee Myung-bak was preparing to take office as South Korea’s president in February, one of his top priorities was to dispatch a team of repairmen to Daebul industrial park in the south of the country.
Indeed, the act speaks volumes about Mr Lee’s presidency. Elected with a landslide victory and a strong mandate to overhaul Asia’s fourth biggest economy, Mr Lee’s strength was his proven record as a Mr Fix-it. As chief executive of Hyundai Construction, he turned the company into an international force. As Seoul mayor, he made significant progress towards making the capital an international city.
But the man once known as “The Bulldozer” has found out all too painfully that the gritty business of building roads and installing bus lanes is a lot easier than the sensitive, consultative task of running an energetic democracy. With even some of his supporters calling him politically naive, Mr Lee’s first months in office have been mired in controversy ? from his choice of senior staff and his handling of a US beef import agreement to his privatisation plans and efforts to promote English in schools.
The public response has been intense. Taking as a rallying point the president’s decision fully to resume imports of US beef ? suspended in 2003 after a scare over BSE, the “mad cow” disease ? thousands of Koreans have been protesting in the streets for two months. The demonstrations have now turned violent: protesters have been attacking police and torching their barricade buses.
Businesses are complaining about the disruption. This week, shop owners in central Seoul even protested against the protesters, wielding placards exhorting, “Fellow citizens, please think about us!” Images of rioters have been beamed around the world, causing consternation in the US in particular and prompting some business delegations to delay visits to Seoul.
“The daily protests are making foreign investors avoid direct investment in Korea and also discouraging investment by domestic businesses,” Han Seung-soo, the prime minister, warned this week. “The credibility of South Korea’s economy is worsening rapidly.”
A further worry for investors is a battle over Korea Exchange Bank, the country’s fifth-biggest lender. Lone Star, the US private equity fund, wants to sell KEB to HSBC of the UK but the deal is being blocked by protracted legal disputes. Foreign fund managers have told the FT they are holding off making large investments in South Korea until some certainty returns to the regulatory environment.
Net foreign direct investment turned negative in the first quarter for the first time in two years, with $670m (￡340m, €430m) being withdrawn from Korea, according to the central bank. Business executives in Seoul express concern that Korea is heading in the wrong direction and is becoming increasingly protectionist. “Korea is snatching defeat from the jaws of victory,” says one foreign banker, asking not to be named.
The bilateral trade deal with the US, supposed to stimulate the economy, has become bogged down amid political wrangling and looks unlikely to be ratified any time soon. The deal was projected to create about 340,000 jobs and boost gross domestic product by more than 6 per cent over a decade.
The upheaval could hardly have come at a worse time. South Korea’s economic growth is slowing, inflation is surging and the currency is weakening: the one-time Asian tiger has lost its roar. Data published this week showed inflation, at 5.5 per cent, reaching the highest annual rate in almost a decade. Everyone from the Bank of Korea to the International Monetary Fund has cut growth forecasts for 2008 GDP to the 4 per cent range, which is still respectable but is much lower than the 6 per cent Mr Lee promised for the year.
A decade after the Asian financial crisis, which led to a widespread economic restructuring, Korea finds itself stagnating, still too dependent on exports of products that Chinese rivals are increasingly capable of making, while the service sector remains underdeveloped. Introducing the next wave of reforms and injecting new life into the economy will take bold leadership, but Mr Lee’s allies worry about the damage caused during the start of his presidency.
“Yes, this has certainly done damage to the government at an early stage in the administration,” says Park Jin, a lawmaker from Mr Lee’s ruling Grand National party (GNP). “Usually, when a new government comes in,it has a honeymoon period of at least six months, but this government did not enjoy one.”
Mr Lee was elected to use his corporate experience to reform the economy, pledging to create a business-friendly environment for domestic and foreign investors, to privatise state-owned companies and to double Koreans’ average income within 10 years. He also said he would repair relations with the US, which had become strained during the tenure of Roh Moo-hyun, his left-leaning predecessor, who tried to make Korea less dependent on its old ally.
Four months into his term, Mr Lee finds himself accused of dictating to the people like a chief executive to his underlings, and of kowtowing to Washington over beef imports. The beef issue, instead of strengthening Korean-American relations, has taken them to a new low ? with US President George W. Bush delaying a planned visit to Seoul this month for fear of becoming the target of a new wave of protests.
Ralph Cossa, head of the Pacific Forum, a Honolulu-based think-tank, says the recent protests are “perplexing and it’s insulting ... People don’t die from eating US beef but they do die driving Hyundais. Should we say that we will not offload Korean cars in the US any more?” Mr Cossa adds: “This may not be all about beef, but the residual anti-American sentiment is being used to get at the [Korean] president. We [Americans] are being used for domestic political purposes and we thought those days were over.”
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Mr Lee’s popularity ratings, according to newspaper polls, have plummeted from 70 per cent to 20 per cent in a matter of months. But some surveys being circulated internally in the presidential Blue House put Mr Lee’s popularity rating as low as 7 per cent, worse even than the incumbent of the time suffered during the financial crisis. “The government has been making many small mistakes and, when you add them all up, you have a big problem,” says Young Soo-gil, president of the National Strategy Institute.
He points to Mr Lee's insistence on the resignations of the chief executives of all 300 state-controlled companies, from electricity to broadcasting, as part of his plan to institute change in the corporations. “There is huge disgruntlement in those companies. It’s too much change all at once,” says Mr Young.
Where did it all go wrong? Mr Lee’s downfall was his hubris, says one of his advisers. After winning by a 5.3m vote margin, the new president thought he could do no wrong. He embarked on a raft of projects without adequately explaining his ideas to the public. “His generation worked 18-hour days ? all he has done his entire life is work, work, work ? so I think he was caught off guard because he didn’t realise how much Korea had changed in the last 10 years,” says the presidential adviser. “There has been a sea change demographically and socially ? young people are now more independent and they don’t respect the government so much any more.”
Although Mr Lee won convincingly, Korean society remains fairly equally divided between conservatives and progressives. The left and non-governmental organisations who shared Mr Roh’s ideals are still very powerful. Mr Park, the GNP lawmaker, accepts that the former Hyundai “Bulldozer” underestimated the need to listen to the people. “Korean democracy has come to a stage where bulldozing is not a possibility any more,” he says.
The impression that the president was not listening was heightened by the fact that he filled the Blue House with people like him ? wealthy businessmen from his home province; from Korea University, his alma mater; and from the influential Somang Presbyterian Church, where he is an elder.
Mr Lee’s personal wealth is estimated at $30m. “The people around him were [also] seen to be rich and it gave the impression that the government would pursue policies that were favourable to the rich at the expense of the less well-to-do,” says Mr Young of the National Strategy Institute. “I think his moral authority has been greatly compromised.”
Mr Lee has now changed most of his senior advisers ? a move that gave him a bump in the polls, putting his approval ratings at about 30 per cent. In addition, he is expected to reshuffle his cabinet in the next few days. But the question is whether the president can turn around his fortunes, let alone the economy.
Amid all the controversy, Mr Lee has backtracked on many of the core pledges he made when he was elected. He has now promised to go slow on privatisation and to give up on his idea to build a canal the length of the country ? one of his flagship ideas, based on the hugely popular 6km waterway he restored to central Seoul during his time as mayor ? if the people objected. During a national apology at the height of the beef protests last month (pictured below), Mr Lee looked a shadow of his former decisive self.
“In retrospect, I have been impatient since I was elected president,” he said in a solemn address. “I learnt a hard lesson in just two months in office and I will never forget it throughout my term ... I will communicate with the people and I will go along with the people. I will uphold the wishes of the people. I will also listen to opposing views.”
Having recognised the problems with his style, Mr Lee must now concentrate on his ideas. He has constantly stressed his “pragmatism” but his own team points out that pragmatism is a means, not a policy. “Discussion tends to be very perfunctory and factual, not strategic or philosophical,” says another of the president’s advisers of the debates within the Blue House. “Roh Moo-hyun had too much vision but Lee Myung-bak has too little. It’s okay to be shallow if you are a corporate CEO, but not if you are the president of the country.”
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Criticising his predecessor helped Mr Lee to paint himself into a corner, says Cho Yoon-jae, an economist who was Seoul’s ambassador to London until February, when Mr Lee took office. “Lee Myung-bak labelled everything that Roh Moo-hyun did as ‘leftist’, when really his economic and foreign policies were not leftwing, only his social policies,” says Mr Cho. “So [Mr Lee] has limited his policy options and he can’t win broad support without broader policies. That’s the fundamental reason why he is facing such widespread resistance.”
But the consensus now ? among everyone from the GNP’s Mr Park to Mr Cho, the Roh-era ambassador ? is that the president must be given the opportunity to put things right. “Lee Myung-bak is a very performance-oriented person ? so, even though he has had a serious setback, after he has re-arranged his house he will try again,” says Jung Ku-hyun, head of the powerful Samsung Economic Research Institute. He points out that many of the president’s original business-friendly policies remain, such as reducing the corporate tax rate from 25 per cent to 20 per cent.
“I’m disappointed by what he has done,” Mr Jung says, “but don’t forget that he has four years and seven months left and that conservatives have a comfortable majority in the national assembly.”
Mr Lee’s problem is that he must weigh the need to listen and appear more inclusive against the risk that he will be deemed a failure if he does not revive the economy, as he promised and as the public expected. If he overcompensates for his first disastrous months by concentrating too much on the former, he will end up going the same way as his predecessor ? leaving office with little to show for his tenure.
With China making economic gains at South Korea's expense, that would be bad not just for Mr Lee’s legacy but for the country’s future prosperity.
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Those with a beef take to the streets
Walking around downtown Seoul on an average day, one can expect to see everyone from retired soldiers and migrant workers to prostitutes and bank tellers staging some kind of protest. With bandanas on their heads and placards in their hands, they sit cross-legged on the street chanting and calling for some kind of change.
It is not unusual for protesters to shave off their hair ? or even chop off a little finger ? as a sign of commitment to a cause.
In South Korea, protests are a way of life. Combine a young democracy with a passionate nationalism and world-beating information technology infrastructure and you can mobilise almost anyone against almost anything. But even by Korea’s explosive standards, the last two months of anti-government protests have been exceptional.
They started with schoolgirls talking in internet chatrooms about President Lee Myung-bak’s decision to reopen the Korean market to US beef. The girls began congregating in front of city hall and families with picnics and young couples on dates joined in, leading to an atmosphere so euphoric that some began calling them “protestivals”.
The usual protest suspects ? trade unions (see picture at top) and non-governmental organisations ? answered the call. This week, religious groups added their number, taking turns to lead the rallies ? Roman Catholics on Monday, Protestants on Wednesday, Buddhists on Friday ? before handing the reins back to the People’s Association for Measures Against Mad Cow Disease this weekend for what is dubbed the “Day of Victory for one Million Protesters”.
In the last week, the protests have turned violent, with demonstrators attacking police. The shells of police buses ? wheels off, windows smashed, covered in graffiti ? lay strewn along the main road leading to the president’s office on Thursday.
Politicians have no choice but to take notice. Korea has a successful history of protesting. In the 1980s, demonstrations led to the end of military rule. To this day, public sentiment can exact big changes.
“People power works,” says Michael Breen, author of The Koreans. “Even now, in this modern democracy, Koreans know that if they want to achieve anything, they have to go out on to the streets and make their voices heard.”