The Wall Street Journal-20080202-Politics - Economics- South Korea-s President-Elect Carefully Woos Foreign Stakes

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Politics & Economics: South Korea's President-Elect Carefully Woos Foreign Stakes

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SEOUL -- South Korean President-elect Lee Myung-bak says he wants to turbocharge the nation's economy by tossing out the old government-led growth model and embracing more competition and foreign investors.

Now comes the big test: Just what does Mr. Lee consider as appropriate foreign investors?

In an interview on Friday with a small group of reporters -- the first since he was elected in December -- Mr. Lee discussed whom he considers welcome and unwelcome.

Those who take part in managing a company are welcome, said the 66- year-old Mr. Lee. However, he added, there are others who only invest in a company and "sell their stake when the stock price goes up. It's an investment for the sake of simple capital investment." Such investors could be restricted "without [such restrictions] being so excessive that they serve as obstacles for foreign investors," he said.

Mr. Lee's cautious response shows the tightrope he must walk as he prepares for a five-year term that starts later this month. The former construction-industry executive and onetime mayor of Seoul won by a wide margin after he promised to speed up South Korea's economic growth by deregulating coddled industries and introducing pro-business policies.

But he also faces a nation that is used to achieving fast growth through central planning and is nervous about an economy that is left to its own devices. In particular, many South Koreans are sensitive to foreigners whose priority is earning money, as Koreans are taught to place importance also on the well-being and growth of the country. Under the current president, Roh Moo-hyun, foreign investment slowed and the government put the brakes on profitable transactions by foreign investors. The highest-profile case, U.S. investment fund Lone Star Funds' attempted sale of its stake in a Korean bank, took another turn Friday, when a judge found Lone Star's South Korean head guilty in a stock-manipulation case and sentenced him to five years in prison. Regulators have cited the case as a reason to hold up the stake sale.

Mr. Lee faces mounting challenges. While the economy grew at a robust 4.9% last year, South Koreans are anxious because they feel growth has slowed from the go-go years of past decades, during which South Korea emerged as a top exporter of steel, autos and electronics.

Meantime, faster growth may be harder to achieve amid concerns that a slowdown in the U.S. economy would weigh on the rest of the world. South Korea may be particularly vulnerable because it is dependent on exports, and the U.S. is a major market.

South Korea's strong exports of industrial products to China provide it with another engine of export growth -- but China also is emerging as a rival in world markets in areas such as shipbuilding. Amid global financial turmoil, South Korean shares have dropped more than 13% since the beginning of the year.

On North Korea, Mr. Lee marked a contrast with his predecessor, saying he was reluctant to have a summit meeting with the North unless there was progress in North Korea's efforts to give up nuclear arms and open up the country. Mr. Roh met North Korean leader Kim Jong Il even without progress on those issues.

Mr. Lee also suggested a novel approach to persuade North Korea to disarm. Current efforts by five nations -- the U.S., Russia, Japan, China and South Korea -- may be moving slowly because North Korea "doesn't trust 100%" the promises they have made, Mr. Lee said. One idea, he said, is to have some countries in the European Union that -- unlike South Korea, Japan and the U.S. -- have diplomatic relations with the North, such as Germany, start a separate persuasive effort.

Mr. Lee didn't specify the role he hoped such a European government would play. It isn't clear whether key players in the six-party talks would welcome such an idea.

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SungHa Park contributed to this article.