International Law

Somehow I Don?t Think This is Going to Help

Against the backdrop of plummeting foreign investment and the flight of Korean capital to better investment destinations, Strategy and Finance Vice Minister Choi Joong-kyung told the Korea Times that Pres. Lee Myung-bak’s “business-friendly” face doesn’t necessarily mean that Korea’s getting over its xenophobic attitude toward foreign investment:

“A friendly investor should walk hand in hand with the Korean economy for win-win results, but private equities are not such investors,” he added, suggesting that foreign PEFs are not in the friendly investors’ zone.

PEFs, including Lone Star, have been criticized here for using legal loopholes to avoid paying taxes on their capital gains. Lone Star, the largest shareholder of the Korea Exchange Bank (KEB), was recently found guilty of stock price manipulation involving its acquisition of KEB’s credit card unit.

The Lone Star case is one which is well-documented and known by all who follow Korean business. The “hand-in-hand with the Korean economy” bit is especially ridiculous when one consider’s Lone Star’s barely-majority stake in the bank. Who held the other shares? Why, Korea’s state-owned and government-controlled “policy banks” (Bank of Korea, the local equivalent of the Federal Reserve; and Korea Export-Import Bank) and some other individual investors. When Lone Star rescued the failing KEB and saved its share price, those government and individual shareholders who held the other half of capital benefitted as well. And since the bank didn’t go under, all those thousands of jobs were saved too. You can’t get much more “hand-in-hand” than that. Yet this point is persistently distorted for political gain.

As for the tax angle, this too is a red herring and the constant kvetching is not good for Korea’s reputation with investors. Tax structuring is done by lawyers and accountants who read and understand the applicable tax laws and put together the investment vehicles to comply with laws. That Korea hates its own laws and constantly grouses about foreigners who follow the laws does not help the perception of “rule of law”.

On question regarding Korea’s reputation for xenophobia, the policymaker said, “What we don’t like is speculative investors, such as those pursuing only short-term speculative gains in the currency markets.”

“We welcome all the foreign investors coming to seek long-term investment gains,” he added.

Choi doesn’t seem to get that all investment is speculative. Investors make an educated guess about how their investments will perform based on market conditions and the investor’s expected management input. Being against speculators is anti-business. Oh, and how to parse this guy’s last statement? Just so long as you don’t try to take your profits home, Mr. Foreign Investor.

Is this really the way things are going to go? I was hopeful for the LMB government, but the more things progress (with guys like Choi flapping their gums) the more it appears the plan is not globalization of the Korean economy and a fair marketplace, but merely an end to harassment of Korean tycoons while harassment of foreign capital continues. What a disappointment.

Full post as published by Korea Law Blog on May 10, 2008 (boomark / email).