Originally published in the April issue of Value Chain.
The results of the presidential primaries that have been held by the contending Korean political parties are now filtering through and it is evident now that the main opposition party, the Democratic Party, will have Mr. Moon Jae In as its standard bearer. He is in his early 60s and has been active in Korean politics for some years, particularly since he was a senior aide to his mentor, former President Roh Mu Hyon, the center/ left politician who was president during the early 2000s. Mr. Moon is perhaps best known for having been the losing candidate in the previous presidential election in 2012 that saw Ms. Park elected as president and Mr. Moon’s return to senior roles in the Democratic Party of Korea, which has long been the main opposition party.
Over the past few days, Mr. Moon received a great majority of the primary votes of the Cholla region, the historic heartland of the Democratic Party in the Southwestern part of Korea, but he also significantly outpolled his nearest rival, Choonchung Province’s Governor, Mr. Hee Jung An, in Choongchung Province itself. As the sitting governor and most senior politician of the Democratic Party in that province, which is in the central area of South Korea, Mr. An was considered to be quite popular with the electorate of the Democratic Party and had been expected to do better in the polls but in recent weeks he had been quoted as casting some doubt on the idea that President Park was well aware of her wrongdoings that lead to her impeachment and was perhaps duped to some extent by her friend Ms. Choi who has been at the center of the impeachment scandal due to testimony about her alleged interference in government affairs but also due to her alleged role in acting as President Park’s chief associate in garnering bribes from a number of the Korean chaebols, the Korean business conglomerates.
Also in the running for the presidency will be Yoo Sung Min of the Barun Party, a newly launched conservative party formed by opponents of President Park’s in the former conservative party, the ‘Saenuri’ Party. His poll numbers have never been out of the low single digits and clearly he is no threat to Moon. The Saenuri party renamed itself the Liberty Korea Party, but since it was not successful in persuading former UN Secretary General Ban Ki Moon to join its party and run as its candidate, the party’s nominee looks unlikely to rise to low double digit popularity ratings.
Another center/left party, the People’s Party, is in the process of nominating Mr. Ahn Chol Soo, who was a contender in the last presidential election until he dropped out of the running in favor of Moon, since it seemed highly unlikely that if there were two center/left candidates in the election against Park, that one of the center/left candidates would win. So, since polls showed Moon with a lead over Ahn at that stage a few months before the election, Ahn did the gracious thing and stepped down. Nevertheless, Moon went on to lose the election. Since that time Ahn has formed a new party, the People’s Party, that is much smaller in terms of deputies in the National Assembly than Moon’s party, the Democratic Party. In any case, although Ahn’s popularity ratings in nationwide polls have come up in recent days, he remains in the low double digit range while Moon seems secure in the thirty plus percent range.
The trend is now fairly clear and absent any major shocks such as a sudden health problem, Moon Jae In seems certain to win the nomination of the Democratic Party of Korea and then the presidency on 9 May. That will put into office an acolyte of the late former president, Roh Moo Hyun into the top job, and most observers expect that Moon will adopt similar policies, particularly with regard to the relationship with North Korea but also in terms of economics. Former President Roh Moo Hyun was a believer in the ‘Sunshine Policy’ of President Kim Dae Jung who was in office immediately before Roh. Kim’s and then subsequently Roh’s Sunshine Policy was designed to placate the North’s leadership by offering economic incentives to the North to persuade their leaders to give up their harsh, anti- South Korean and anti-Western policies and begin to modernize their economy in a peaceful manner similar to that of China in the 1980s following Chairman Mao’s death in 1976 and the end of the Cultural Revolution shortly afterwards.
Whether in current circumstances, given North Korea’s determination to build up its nuclear arsenal including missile delivery systems, it will be possible for Moon to readopt the Sunshine Policy is a major question. Moon will not have a parliamentary majority since his Democratic Party does not have a majority in the National Assembly and he will not be able to ram bills through into law without the support of other parties, particular the People’s Party which holds similar views on many significant issues. The absence of a majority in the Korean National Assembly might make it difficult for Moon to implement a new policy toward North Korea, but Moon’s main challenge to a restart of warmer relationships with North Korea might turn out to be the attitude of the Trump administration towards such efforts. At this time the Trump administration’s policies towards North Korea have not been fully articulated, but it does seem that the new administration believes that the Bush and Obama administrations’ policies of ‘strategic patience’ are not being considered as productive policies by the Trump administration.
Another area of potential major change under a new Moon administration could well be the new administration’s policies towards the chaebol, the Korean conglomerates, and big business in general. Historically, Moon’s mentor former President Roh had a somewhat fraught relationship with the chaebol in that his administration did try to enhance state regulation of the chaebol to prevent monopolies and other chaebol abuses, including tax evasion and embezzlement, but with only mixed success at best. Then, when Roh stepped down and was followed by a conservative, President Lee Myung Bak, who turned back the clock and took a much more lenient attitude towards the chaebol, the chaebol were able to avoid some oversight and this more lenient policy continued into President Park’s administration.
Now the major question will be: what does Moon intend to do about the chaebol since his predecessor was impeached due to alleged bribery committed by the heads of a number of the chaebol, including JY Lee of Samsung. Moon has suggested in recent election statements that he wants a more fair system that curbs the powers and privileges of the chaebol, but he has avoided providing any details. It is certainly highly probable that JY Lee will not be the only major chaebol figure to be tried in the Korean courts for the alleged bribery of President Park. But that is a corporate governance issue and it does not tell us anything about Moon’s attitude towards corporate and personal tax rates and business regulations in general. These things are of concern to the foreign business community in Korea because many foreign companies have joint ventures or customer relationships with the chaebol and other Korean companies, and if the tax rates are to be modified, then the new and presumably higher rates will apply to foreign companies in Korea along with the chaebol and Korean companies.
Then there is the issue of business regulation in general, such as the requirement for foreign companies to store their IT data only in Korea rather than make use of a data storage point outside Korea. This is just one example of a business operational regulation that impedes foreign business and adds to the costs of operating in Korea, and there are many others. Moon’s attitude towards regulations will to a major extent signal his intentions as to whether the operating environment for business in Korea, both Korean and foreign, is to be made more or less challenging from a general operational perspective as well as a purely financial perspective. As the presidential election campaign unfolds, it will be important to remain alert to what Moon will have to say about these major issues.
Hank Morris is an Adviser at Argentarius Group, Member, Executive Board at Seoul Financial Forum and Director at IRC Limited.