2025-06-09-花旗集团-韩国经济_关于李在明政府投资者常见问题_12页_229kb

South Korea Economics: Summary of Lee Jae-myung Administration Implications

Core Content Overview

This document outlines key investor concerns and Citi's analysis regarding the economic policies and reforms of the Lee Jae-myung administration in South Korea. It focuses on fiscal policy, government reorganization, and corporate governance reforms, providing forecasts and insights into the potential impact on the economy and financial markets.

Key Areas of Analysis

1. Fiscal Policy and KTB Issuance

• Second Supplementary Budget: The new administration is expected to introduce a second supplementary budget ranging from KRW20trn to KRW35trn, which would increase the KTB gross issuance for 2025 to KRW227.1trn to KRW242.1trn.
• Comparison with Historical Data: The average KTB gross issuance from 2020 to 2024 was KRW169.5trn, indicating a significant increase in fiscal spending for 2025.
• Funding Source: The budget is likely to be financed primarily through extra KTB net issuance, given the limited scope for excess tax revenue and public funds.
• Fiscal Multiplier Impact: The expected KRW50trn fiscal spending (1.9% of GDP) could boost economic growth by +0.38ppt to +0.77ppt over four quarters, based on a fiscal multiplier assumption of 0.2-0.4.
• Timeline for Fiscal Policy Events:
  • Late July'25 to early August'25: The second supplementary budget is expected to be passed and implemented.
  • Late August'25 to early September'25: Tax law amendment proposal, 2026 budget proposal, and 2025–2029 fiscal management plan are likely to be released.
  • Early December'25: The National Assembly is expected to pass the 2026 budget and tax law amendment.

2. Government Reorganization

• Reorganization Plan: The new administration plans to restructure the Ministry of Economy and Finance (MoEF), Financial Services Commission (FSC), and Financial Supervisory Services (FSS).
• Decentralization of MoEF: The five major functions of MoEF (budget planning, public institution management, economic policy, tax policy, and international financial policy) will be distributed among three independent agencies: the Budget Office, Public Institutions Management Commission, and the new Ministry of Finance.
• FSC and FSS Merger: The FSC and FSS are likely to be merged into a Financial Supervisory Commission, while the domestic policy function will be transferred to the new Ministry of Finance.

3. Corporate Governance Reforms

• Amendment to Commercial Act: The Democratic Party of Korea reintroduced an amendment to the Commercial Act on June 5th, which includes:
  • Codifying fiduciary duty of directors: Ensuring that corporate management acts in the interest of all shareholders, not just controlling families or majority shareholders.
  • Mandatory cumulative voting system: Allows minority shareholders to elect their own representatives to the board.
  • Expanded coverage of the 3% rule: Requires directors appointed to the audit committee to be elected separately from other directors, limiting voting rights for shareholders with more than a 3% stake.
• Additional Reforms:
  • Separate election system for audit committee members: Large companies will gradually implement this to enhance oversight.
  • Mandatory electronic shareholder meetings: For larger companies, with a 1-year grace period.
  • Change in terminology: "Outside director" will be replaced with "Independent director".
  • Spun-off subsidiary public listing: Parent companies must allocate new shares to existing minority shareholders.
  • Fair M&A valuation process: Ensures fair treatment of minority shareholders during mergers and acquisitions.
  • Mandatory tender offers: In the event of takeovers, minority shareholders will be offered a chance to exit at a fair price.
  • Systematic cancellation of treasury shares: Aimed at preventing misuse for management control and enhancing shareholder value.

Key Information and Implications

• The Lee Jae-myung administration is expected to significantly increase fiscal spending in 2025, with a cumulative supplementary budget potentially reaching KRW50trn.
• The reorganization of government agencies is aimed at decentralizing power and improving efficiency in fiscal and financial oversight.
• Corporate governance reforms focus on protecting minority shareholders and ensuring fair treatment in various corporate activities, including mergers, acquisitions, and subsidiary listings.
• The Korea Discount, a practice that disadvantages minority shareholders, is targeted for removal through these reforms.

Conclusion

The Lee Jae-myung administration's policies are expected to have a substantial impact on South Korea's fiscal and corporate landscape. Increased government spending, reorganization of key financial institutions, and enhanced corporate governance measures are likely to influence investor sentiment, market dynamics, and the overall economic environment in the country. Investors should closely monitor the implementation of these policies and their long-term implications.