Korea’s $1.6 Trillion Man Faces Giant Bubble Presidents Avoid

South Korea’s economy is in an odd state of flux as we wait for its new leader to be sworn in. Not President-elect Yoon Suk-yeol, but Rhee Chang-yong, who’s been nominated to take the helm at the Bank of Korea.

Rhee isn’t a done deal. The Asia-Pacific director for the International Monetary Fund still must be confirmed. Yet odds are, Rhee will be moving into his new office at BOK headquarters in downtown Seoul later this month. Then, he will tend to the work of running Asia’s fourth-biggest economy.

If Yoon, who enters the Blue House on May 10, thinks that’s his job—or that of his People Power Party—he hasn’t been paying attention to Seoul political dynamics these last 15 years. Thanks to a combination of political gridlock and chronic timidity, Korea’s last three leaders essentially outsourced the work of improving the fortunes of 52 million people to the central bank.

Take Moon Jae-in, who will be passing Yoon the presidential baton next month. In 2017, Moon took office with grand plans to remake Korea’s rigid and often uncompetitive economy. Chief among them: an experiment with “trickle-up economics” that wrestles power away from the family-owned conglomerates towering over the nation.

Yet Moon saw the magnitude of the task, demurred and left economic management duties to outgoing BOK Governor Lee Ju-yeol. It was a familiar situation for Lee, who’s been holding the reins since April 2014. Back then, it was Moon’s predecessor Park Geun-hye phoning it in to BOK headquarters.

In February 2013, Park assumed the presidency talking big about building a more “creative” nation and “democratizing” the economy. It meant taking the family conglomerates, or “chaebols,” down a few pegs to make space for a startup boom.

Instead of disrupting Korea Inc., Park got co-opted. In 2017, she was impeached and jailed in a bribery scandal involving the biggest chaebol of all—Samsung. Also jailed for a spell for his part in the controversy was the scion of the Samsung empire, Jay Y. Lee.

Now that Lee is free again, new President Yoon also will be at the Lee family dynasty’s mercy. Rhee’s team at the BOK will keep the economic trains running, but it’s Lee and his chaebol peers who hold most of the power.

Might Yoon be the Korean leader who finally clips the chaebols’ wings? It’s impossible to tell. But he’s the fourth president to win election as a self-proclaimed reformer ready to shake up the status quo.

Before Moon and Park, Lee Myung-bak (2008-2013) came and went with few structural upgrades to his name. Mostly, history will recall Lee for also being convicted of corruption.

Luckily, the BOK was on the job as all this political intrigue was distracting elected leaders from doing their jobs. Before Lee Ju-yeol, Governor Kim Choong-soo ran the BOK with great distinction—from 2010 to 2014. Kim’s interest rate maneuvers, like Governor Lee’s after him, managed to steer Korea’s economy away from the rocks.

Before Kim, Governor Lee Sung-tae did his own share of savvy crisis management during the 2008 Lehman Brothers crisis. Back then, many shortsellers bet that Korea would become the next Iceland. Instead, the BOK helped the nation steer around the crisis and confound the naysayers.

In 2013, during Kim’s tenure, Seoul avoided the worst of the “taper tantrum” devastating emerging markets. More recently, Lee Ju-yeol’s team helped the nation navigate around the Covid-19 trauma of 2020. By late 2021, the BOK became the first major central bank to begin raising rates, a sign Korea was leading the globe out of the pandemic period.

Of course, Rhee will have his work cut out for him as pandemic risks collide with surging global inflation and geopolitical shockwaves from Russia’s invasion of Ukraine.

The good news is that Korea is better positioned than arguably all of the other top-12 economies to navigate a uniquely uncertain year. The Asian Development Bank, for example, sees Korea growing by 3% this year.

The bad news is that Korea’s sizable, yet open economy faces a bull market in wild cards as global headwinds race its way. At the same time, China, by far the biggest market for Asian goods, faces fresh waves of Covid-19 infections. And fallout from President Xi Jinping’s crackdowns on Big Tech and property developers is backfiring on Chinese gross domestic product.

If President-elect Yoon is to break the cycle, if he’s to put some big reforms that increase Korea’s dynamism and raise living standards on the scoreboard, he’ll have to hit the ground running.

Already, though, Yoon seems more interested in foreign policy—relations with China, North Korea and the U.S.—than domestic retooling. These are very important and understandable goals. But none of these pursuits will disrupt a system dominated by a handful of massive family business hoarding power. Nor does Yoon’s “anti-feminist” campaign suggest he’s the man to empower fully one half the nation.

Nor does Yoon have a clear plan to reduce record household debt that’s more than 106% of Korean GDP. Figuring out how to cut this unsustainable buildup has confounded the last few governments, making Rhee Korea’s $1.6 trillion man. If presidents won’t address this bubble, it falls to the BOK to keep the financial peace.

This means that, odds are, Rhee will run the show for the Blue House, just like the last three BOK teams. That’s fine for 2022, but it won’t answer questions about where Korea might be 10 years from now.