South Korean Academics Urge Finance Minister Kang to Resign

By Seyoon Kim and William Sim

July 22 (Bloomberg) -- South Korean Finance Minister Kang Man Soo should resign after pursuing ``irrational'' policies that fanned inflation and hurt the nation's economy, a group of 118 economics and business professors said.

Kang ``was obsessed with short-term growth and tried to manipulate the exchange rate to boost exports despite numerous warnings from economists that stable policies should be pursued in the midst of rising oil and grain prices,'' the academics said in a statement published on the Web site of the Citizen's Coalition for Economic Justice dated July 21.

South Korea's currency fell as much as 11 percent since Kang became finance minister on Feb. 29. In April he said the won's decline reflected the state of the economy and that it had risen more than other Asian currencies in previous years. The government is now taking steps to reverse the slide, spending more than $20 billion on intervention, according to Ko Yun Jin, a currency dealer with Kookmin Bank in Seoul.

``Minister Kang had to shift policy focus to stabilizing prices after soaring oil costs fueled inflation,'' said Kwon Young Sun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. ``This change in policy wasn't limited to South Korea, but happened across Asia.''

When Kang became minister crude oil was trading at about $100 a barrel. It was at $130.59 at 12:12 p.m. in Singapore.

Kang helped President Lee Myung Bak win last year's election with a pledge to boost economic growth to 7 percent from 5 percent last year, double per-capita income to $40,000 by 2015, and lift the economy's ranking to 7th largest from 12th.

Foreign-Exchange Policy

``Minister Kang must take responsibility for his failure to manage economic policies, especially the foreign-exchange policy,'' Yang Hyuck Seung, a professor at Yonsei University in Seoul and who is a spokesman for the academics, said in an interview. ``He was obsessed by achieving the 7 percent growth target.''

South Korea's inflation accelerated to 5.5 percent in June, the fastest past in 10 years, squeezing household incomes and corporate profits. The government this month cut its economic- growth forecast to 4.7 percent from 6 percent. The economy grew 5 percent last year.

Speaking in an interview in Madrid on May 5, Kang said South Korea's inflation was ``inevitable'' because global food and energy costs were climbing and that the government should pursue policies to drive growth. In April, he said the nation's borrowing costs are ``higher'' than those of many other economies.

`No Secret'

``It was no secret Kang wanted lower interest rates a few months ago,'' said Lim Jiwon, economist at JPMorgan Chase & Co. in Seoul. ``But the external conditions deteriorated far more than anyone expected since then.''

South Korea's government switched its focus to fighting inflation from promoting growth in June after President Lee's approval rating dropped amid rising prices and strikes that crippled the nation's ports.

Lee dismissed Vice Finance Minister Choi Joong Kyung, who was in charge of the government's foreign-exchange policy, in a Cabinet reshuffle on July 7. Kang kept his job.

Speaking in parliament today, Kang said he took the criticism by the academics as a ``rebuke,'' and promised to work harder to stabilize prices.

The won traded at 1,017.30 against the dollar as of 2:04 p.m. in Seoul from 1,018.00 yesterday. The currency has risen 3.3 percent since July 4, when it fell to the lowest close for the year.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net