News and Finance

South Korea's economy is slowing at the worst possible time for President Lee Myung Bak.

The softening comes amid a slump in Lee's popularity as consumers protest U.S. beef imports and higher oil costs. Already, plans to sell state-owned companies and cut red tape to spur business investment have been delayed.

Growth will slow this year to 4.1 percent, the weakest since 2003, the International Monetary Fund forecast on June 24. That's down from 5 percent last year because rising global food and fuel prices will crimp consumer and business spending.

“The stalling of the policy process comes at a critical time,'' said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. “With growth rapidly decelerating, economic reforms were meant to prop up the economy over the coming year.''

South Korea's households, weighed down by record debt, were the most pessimistic they have been in more than seven years this quarter, the Bank of Korea said yesterday. Businesses are doubtful too: the sentiment index for June dropped to 88 from 92. Anything below 100 shows pessimists outnumber optimists.

Consumers and executives share the same concern, that record fuel prices will fan inflation in an economy that imports 97 percent of its energy. Consumer prices jumped the most in seven years in May, exceeding the central bank's target range for a seventh month.

`Crisis'

“We're facing both economic and political crisis,'' said Chun Chong Woo, an economist at SC First Bank Korea Ltd. in Seoul. “It's like the captain is trying to fight the storm when his crew want to throw him out into sea.''

Lee won a landslide victory in December on his Korea 747 Vision plan to boost annual economic growth to 7 percent, double per-capita income to $40,000 by 2017 and elevate the economy to the world's seventh-largest from 12th.

Since he took office in February, Lee's approval has tumbled by more than half to 21.2 percent, according to a survey by newspaper Chosun Ilbo, which gave a margin of error of 3.1 percentage points faxless payday loans.

The main cause for the drop was the April decision to allow imports of U.S. beef, which many Koreans believe is tainted with mad-cow disease, in order to get U.S. lawmakers to support a free trade agreement between the two countries. The deal would lead to 340,000 new jobs and increase gross domestic product by more than 6 percent over the next 10 years, according to Lee.

Opposition in Washington

The agreement is also encountering obstacles in the U.S. President George W. Bush hasn't submitted the accord to Congress for a vote, and House Speaker Nancy Pelosi and presumed Democratic presidential nominee Barack Obama say they oppose it.

At home Lee's plans are slowly being wound back.

During his election campaign, he pledged to remove regulations hampering business, to cut company taxes, to reduce wasteful public spending and to sell government-owned enterprises. The centerpiece of the policy was the construction of the Great Korea Canal across the country, its estimated 15 trillion won cost to be borne by the private sector.

On June 18, Lee's ruling Grand National Party said it had agreed with the government and the President's office to drop plans to sell South Korea's electricity, gas, water and health insurance services. The following day, Lee said Koreans could rest assured that the government had “no such plans'' and said he'd scrap the canal project — if people opposed it.

“President Lee hasn't done anything yet and will have difficulties to do what he promised,'' said Kim Jae Eun, an economist at Hana Daetoo Securities Co. in Seoul.

Source