Nikkei Asia Prizes 2003

Lee rose to challenge of financial system crisis

TADASHI TAMAKI
staff writer

SEOUL - The enormity of the challenge in bringing his country back from the edge of financial catastrophe is not lost on Lee Hun-jai, winner of the Nikkei Asia Prize for Regional Growth. "My role was like that of a fire chief who leads an emergency recovery effort," explained the former minister of finance and economy for South Korea. "I had to take immediate action to bring financial markets and commercial activity back to normal, even if the measures were less than perfect."

When he was made chairman of the Financial Supervisory Commission after the 1998 inauguration of President Kim Dae-jung, the economy was suffering "the worst chaos since the Korean War." Lee was chosen to spearhead financial system reform because of his reputation as a brilliant bureaucrat with original ideas. His time as an executive in the Daewoo group meant he had real-world experience, too.

Change within the banking sector began immediately. Five hopeless banks were closed and seven were told to merge or accept foreign capital. Opposition was strong, but Lee thought trying to save doomed banks would make things worse.

Banks with recovery potential, on the other hand, found public funds readily available. In total, 157 trillion won ($131 billion), a sum equivalent to 30% of South Korea's gross domestic product, has been injected into various lenders since 1998. To ensure a fresh start, executives at banks receiving public funds were made to resign.

During the five years that Kim was in power, South Korean banks declined in number from 33 to 18, including one deal still under negotiation. Bad loans totaled just 15 trillion won at the end of 2002, down from 88 trillion won in March 1998, in no small part because Lee continued to champion reform after being named Minister of Finance and Economy in 2000.

Industrial restructuring was pursued with equal determination, a prime example being efforts to break up the Hyundai and Daewoo conglomerates.

Lee remains widely respected for his innovative thinking, decisiveness and disinterest in fame and wealth. In February 2003, he was praised as the best minister in the history of South Korea by members of the incoming Roh Moo-hyun administration.

Aside from consulting and other professinal pursuits, Lee now spends time studying corporate governance.