Cho Kuk, head of the Innovative Policy Institute at the Rebuilding Korea Party, recently criticized the "roller-coaster KOSPI" market as "a failure of state-directed finance created by a policy core led by Kim Yong-beom, chief of the Presidential Office's policy planning." Cho took a hard line, saying the entire process — the way the leveraged exchange-traded fund (ETF) was introduced, the slow response that compounded the damage, and the ineffective stopgap measures — should be laid bare and that an inspection of those responsible was needed. In fact, some market experts have also pointed out that the leveraged ETF was introduced too hastily, and Financial Supervisory Service Governor Lee Chan-jin belatedly offered a self-critical reflection, saying he "should have lain down to block it."
Kang In-soo, a professor of economics at Sookmyung Women's University, said in an interview with the Seoul Economic Daily on the 10th that the controversy over the leveraged ETF showed "the Presidential Office's internal review was not done properly." "The direction of the capital-market development that the Lee Jae-myung administration pursued to resolve the 'Korea discount' was not wrong," Kang said. "But confidence in the policy was excessive, and it relied on short-term measures to prop up the market, which ultimately caused problems." Kang is an economics expert who has served as a consultant to the United Nations Development Programme, a member of the National Tax Ruling Review Committee at the Ministry of Finance and Economy, head of the Hyundai Research Institute and president of the Korea Academy of International Commerce and Trade.
Kang proposed strengthening the role of a "red team" within the Presidential Office. "President Lee attends to even the smallest details, and policy decisions are being made in a one-way structure aligned with his own intentions," Kang said. "The use of experts should not rely on just one side; the opposing view must be heard. Only when the final decision is made in a comprehensive form will problems like the current ones be avoided." On the leveraged ETF, Kang suggested that, as with Hong Kong's Securities and Futures Commission, the leverage multiple should be adjusted from the current 2 times to 1.1 to 1.5 times and that rebalancing trades concentrated at the market close should be dispersed. These are also matters that both the Financial Services Commission and the financial investment industry are reviewing to ease volatility.
Kang stressed that policy to prop up the market must ultimately shift toward raising trust in the capital market. "We need to build a mature capital market on a solid footing, but the current market has degenerated into something like a gambling pit," Kang said. "To foreign investors, it looks very strange and has become a structure in which long-term investment is difficult." He added: "What the government should do is not short-term stimulus but creating a good environment for the capital market. There are many solid companies across various fields — semiconductors, artificial intelligence (AI), nuclear power, shipbuilding and defense. The government need only help these companies raise funds smoothly in the capital market and pay dividends to investors."
Kang also pointed to government failure caused by various real estate regulations, such as land transaction permit zones. "Cases of government failure, in which the government intervenes in the market but fails to achieve its planned results, appear even in economics textbooks," he said. "The government should not try to beat the market but should pursue market-friendly policy." He also pointed to clear limits in the public debate on real estate policy that President Lee personally took part in. "The period between the debate and the announcement of the tax reform bill was short," he said. "It is hard to say that the various views raised in the debate were reflected in the policy."
On the semiconductor cluster in the Honam region, Kang said the policy had put the cart before the horse. "Power, water and workforce — considered the core of the semiconductor industry — should be examined first to decide the optimal location, but the current approach is to first fix the location and then build the infrastructure that is needed," he said. "Uncertainty is high over matters such as creating living conditions for residents and securing water, and it could take excessively long." On the semiconductor industry, he argued that Korea must respond pre-emptively to U.S. tariffs and demands for expanded investment. "The reason the Trump administration is not imposing additional tariffs on chips produced in Korea is that it sees more to lose from raising costs for the U.S. company Nvidia," he said. "But it is hard to keep counting on U.S. goodwill, and there is a possibility that it will use tariffs as leverage to demand additional investment." He continued: "We need to use the technologically irreplaceable position of Samsung Electronics and SK hynix, such as in high-bandwidth memory (HBM), in trade negotiations with the U.S. Beyond individual companies, we need a government-led 'package deal' strategy that includes related industries such as advanced semiconductors and energy."
