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South Korea's finance minister resigns
(Bloomberg)
Updated: 2005-03-07 16:29

Lee Hun Jai, South Korea's finance minister and top economic planner, resigned after legislators questioned property investments by his wife that contributed to a $6.5 million jump in his family's wealth.

President Roh Moo Hyun accepted Lee's resignation today, according to a statement from the president's office in Seoul, which didn't name a replacement. Ministry spokesman Kim Kyung Ho told a briefing Lee, 60, didn't speculate in real estate, but some transactions prompted "regrettable" questions.

South Korea's Finance Minister Lee Hun-jai attends his office in Seoul March 7, 2005. [Reuters]

Roh rejected an earlier offer by Lee to step down, persuading the two-time finance minister to remain in office until his measures of tax cuts and increased government spending revived growth. Lee's resignation shouldn't derail a recovery in Asia's third-largest economy as the government will likely continue with his policies, said Lehman Brothers' Yoon Yong Chul.

"Regardless of who comes to the position, we expect the government's current economic policies to stimulate local sentiment and consumption," said Yoon, head of Lehman's Korea Research in Seoul. "Therefore, we think the negative impact on the equity market will be limited."

Yoon said it's difficult to predict who will replace Lee, though Financial Supervisory Service Chairman Yoon Jeung Hyun is "a strong candidate for economic team leader."

Lee's resignation spooked the stock market, with the Kospi the only benchmark index in Asia falling today. The Kospi has gained 16 percent since Lee took office in February 2004, rising last week above 1,000 points for the first time in five years. The index closed 0.5 percent lower at 1,007.50 in Seoul.

The Kospi last week gained for an eighth week, completing its longest weekly expansion since it rose for nine weeks in the period ended November 2001.

Slowdown

Growth in South Korea's economy halved in the year prior to Lee's February, 2004, appointment as consumers cut spending after a credit binge left many unable to meet debt payments. Growth rebounded to an estimated 5 percent last year, and the won currency has soared to a seven-year high against the dollar amid optimism the economy will continue to expand.

The won traded at 1,004.65 won per dollar at 3:46 p.m. in Seoul. The currency has gained 0.3 percent today.

"The presidential office will likely appoint a replacement who'll stick to its plans of boosting the economy, rather than someone who'll rock the boat by announcing new reform measures," said Lee Sung Kwon, an economist at Good Morning Shinhan Securities Co. "Lee was tremendously successful in calming the market after the Roh administration's initial reforms."

Real Estate

The ruling party called for Lee's resignation over the weekend after last month's annual review of cabinet ministers' assets revealed Lee's wealth had expanded by 6.5 billion won ($6.5 million) in the past seven years, 4.6 billion won of which was due to profits from real-estate transactions by his wife.

"The finance minister let us know of his intention to resign through the vice minister," Kim Jong Min, a presidential spokesman said. "It is my belief that the resignation will be accepted today."

Lee, a graduate of Harvard University, said Feb. 4 that South Korea's economy was showing "signs of a turnaround" after credit-card debts forced consumers to trim spending.

Business confidence had its biggest jump in more than a decade last month after reports showed consumer spending may be rebounding from a two-year slump.

Adjusting for changes in the timing of the Lunar New Year, sales at the nation's three largest department store chains surged 8.9 percent from a year earlier in January, official figures show. Sales fell in 18 of the 24 months ended Dec. 31 after many Koreans borrowed beyond their means and were unable to meet debt payments.

Slowing Growth

While South Korea's $605 billion economy rebounded under Lee's direction, the minister said Nov. 19 he expected growth to slow in the fourth quarter and forecast the government's 5 percent target for 2004 wouldn't be met. Sliding domestic demand may damp growth to less than 4 percent this year, he said Jan. 7.

Lee, who previously served as finance minister for eight months from January 2000 under former President Kim Dae Jung, returned to the nation's top economic policy role in February last year.

When Lee, a Seoul National University graduate, last took charge of the nation's finances, the economy was bouncing back from the Asian financial crisis. Gross domestic product rose 11 percent in 1999 -- its biggest gain in more than a decade -- and consumer spending, corporate investment and exports were all surging.

Lee was chairman of South Korea's Financial Supervisory Commission before his last appointment as finance minister and won the reputation of a reformist crusader in the international community by shutting dozens of troubled lenders, brokerages and trust companies and challenged conglomerates.

He also served as a director in the finance ministry's international department and was president of Korea's first credit rating company.

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