“Why would Donald Trump, the U.S. president, exempt us from tariffs just because the South Korean presidential duties are halted? Absolutely not. Soon, a bill will arrive in Korea as well. If we are flustered when the U.S. announces its tariff policy toward Korea, it’s already too late. A joint public-private organization to respond to U.S. trade issues should be established immediately.”
Kwon Hyok-se (69), adviser at the law firm Yulchon, said in an interview with ChosunBiz on the 5th, “The launch of the second term of the Trump administration and the impeachment proceedings overlap, creating a serious economic situation for us.”
Adviser Kwon is a traditional financial official who served as the 8th governor of the Financial Supervisory Service (FSS) and the second vice chairman of the Financial Services Commission during the Lee Myung-bak administration. He first entered public service in 1981 and worked on the national economic system for 32 years until stepping down as the FSS governor in 2013. During his tenure, the Korean economy experienced various ups and downs, from rapid growth around the 1988 Olympics to the global financial crisis in 2008.
Advisor Kwon took key positions at the Financial Services Commission and FSS during a time when Korean finance was reeling from various internal and external challenges. His primary task was crisis management. In 2009, after serving as Secretary-General of the Financial Services Commission, he was promoted to the position of vice chairman, working alongside Chairpersons Chin Dong-soo and Kim Seok-dong to address the global financial crisis. Shortly after moving to the FSS governor position in 2011, the savings bank crisis erupted. Advisor Kwon took decisive action. Despite opposition from the Blue House, the FSS led by Kwon conducted a comprehensive investigation into savings banks and enforced a rigorous restructuring process to prevent the crisis from spreading from savings banks.
Advisor Kwon noted that the current economic and financial conditions in Korea remind him of his tenure as FSS governor. Advisor Kwon emphasized, “Although it is early to declare an economic crisis now, we should prepare measures to address the situation before it escalates into a real crisis, given that both internal and external circumstances are unfavorable.”
―The second term of the Trump administration started last January. What impacts do you foresee on the Korean economy?
“In 2017, when the first Trump administration was launched, Korea was also in the midst of impeachment turmoil. However, our economic situation now is worse than eight years ago. The domestic market has weakened, and the construction industry is stagnant. The vulnerabilities in the non-bank financial sector have grown. In this context, the Trump administration’s policies will adversely affect Korea’s export trade. Exports have been a pillar of our economic growth over the past two years. If exports decline while domestic demand is weak, our economy could falter.”
―The Trump administration has initiated a global tariff war. There is speculation that additional tariffs may be imposed on Korea.
“Domestic semiconductor corporations have factories in China and Vietnam. The Trump administration’s stance is to impose tariffs on anything not produced domestically. Ultimately, Korean semiconductors will face direct or indirect tariffs, affecting profitability. This weakens our semiconductors' competitiveness on the international stage. Moreover, even if new semiconductor plants are established in the U.S., the provision of subsidies remains uncertain. There’s a significant likelihood of negative impacts not only on semiconductors but also on key industries like automobiles and batteries.”
―Do you also believe financial support is necessary to maintain the export competitiveness of key industries?
“Yes. The roles of policy banks and financial public corporations are crucial. For instance, Korean corporations might have planned their businesses considering U.S. semiconductor subsidies, which might be withdrawn. In such cases, the corporations need to raise additional funds equivalent to the withdrawn subsidies. The Korea Development Bank can assist corporations with low-interest loans. Furthermore, when changes occur in conditions for exports to the U.S., providing subsidies through platforms like the Export-Import Bank of Korea or the Korea Trade Insurance Corporation can be considered.”
―No significant measures regarding trade relations with the U.S. have been announced yet.
“Currently, Korea lacks an effective national control tower. If the government doesn’t take assertive action, can policy banks find solutions on their own? First, the public and private sectors need to join forces to establish a U.S. trade response team. This team should include not only government ministries like the Ministry of Strategy and Finance, Ministry of Trade, Industry and Energy, and the Financial Services Commission, but also related associations and experts. The goal is to devise response strategies for different scenarios. If we simply sit back and wait for the current political chaos to end, we will falter. President Trump is a businessman, quick with calculations and skilled in negotiations. Trump is certainly aware that Korea’s trade surplus with the U.S. has increased significantly compared to the first term of his administration. Therefore, we must quickly identify what the U.S. wants and the weaknesses in the U.S. industries to prepare negotiation strategies.”
Adviser Kwon shifted the conversation from external economic conditions to a diagnosis of the domestic financial environment. A day before the interview, the FSS announced it had uncovered 387.5 billion won in unauthorized loans executed at KB Kookmin, Woori, and NH NongHyup banks. Adviser Kwon emphasized the importance of financial companies’ own reform efforts to eradicate financial accidents.
―Despite the financial authorities issuing warning messages for years, large-scale financial accidents continue.
“Recently, financial authorities have strengthened regulations related to internal controls and introduced new accountability structures. While the authorities are responsible for creating systems, it is the role of financial company members to embed these systems within their organizations. It’s time to change the organizational culture of financial firms, especially by breaking down paternalistic traditions. Take the U.S. as an example—U.S. financial firms frequently implement ‘compulsory leave,’ sending managers on mandatory vacations while audit departments review all of their work documents, effectively preventing financial accidents. Look at our country—due to the camaraderie of working together, employees are reluctant to scrutinize each other’s positions. Labor unions oppose it. Such paternalistic culture creates lax internal controls. The creators of systems are people, and the implementers and adapters of these systems are also people.”
―During your tenure as FSS governor in 2011, the savings bank crisis occurred. Some say the crisis has reached the savings bank industry once again. How do the past and current situations compare?
“It’s challenging to describe it as a severe crisis. In the past, many large savings banks were run by individuals. Most of these banks had little equity capital but engaged in aggressive ventures using customer deposits. As a result, even large firms suffered capital erosion from a 100 billion won loss. How could an individual repay 100 billion won alone? Savings banks went bankrupt, and customer deposits were unprotected. Therefore, we decided on a restructuring of large, individually-owned savings banks at that time. In contrast, today, large savings banks are backed by financial holding companies or significant foreign capital, reducing the likelihood of a widespread crisis. Regulatory authorities have also strengthened soundness regulations. It is not necessary for authorities to fully initiate savings bank restructuring now, as it might stir market instability. If the government sends anxiety signals, people become shaken. If a bank run were to occur, the situation could deteriorate rapidly, just like it did during the past savings bank crisis.”
―In addition to savings banks, the entire secondary financial sector is experiencing rising arrears and warning signs on soundness have appeared.
“It’s a situation that requires close attention. As domestic demand has frozen, arrears and insolvencies centered around personal loans have increased. Additionally, the downturn in the real estate market has resulted in a significant number of defaults in real estate project financing (PF). The 2011 savings bank crisis also gradually emerged after aggressive expansion into real estate PF businesses by savings banks in 2007. Last year, the FSS announced measures for a soft landing in real estate PF. The measures include reassessing business viability and encouraging auction and sales of business sites, which is a timely policy. Once the real estate PF market normalizes, fresh momentum will flow into the construction industry.”
☞Adviser Kwon Hyok-se at Yulchon
▲Bachelor’s in Business Administration from Seoul National University ▲Master’s in Economics from Vanderbilt University ▲Standing Commissioner of the Securities and Futures Commission ▲Secretary-General of the Financial Services Commission ▲Second Vice Chairman of the Financial Services Commission ▲Eighth Governor of the Financial Supervisory Service ▲Visiting Professor at Seoul National University Business School ▲Chair Professor at Daegu Catholic University ▲Outside Director of the National Agricultural Cooperative Federation ▲Outside Director of Hyundai Commercial ▲Adjunct Professor in the Department of Consumer Economics at Sookmyung Women’s University ▲Visiting Professor at Dankook University Graduate School of Business Administration ▲Advisory Committee Member for Hyundai Card