By Kim Jae-kyoung
Staff Reporter
Foreign private equity funds (PEFs), such as Lone Star and Carlyle Group, are not considered as a friendly investor, as they don't seek win-win gains together with the Korean economy, according to a ranking economic policymaker.
``Theoretically, there is a wide spectrum between a friendly investor and an unfriendly investor. If friendly and unfriendly investors are located at the far right and far left side, (foreign) PEFs are right in the middle,'' Strategy and Finance Vice Minister Choi Joong-kyung told The Korea Times.
``A friendly investor should walk hand in hand with the Korean economy for win-win results, but private equities are not such investors,'' he added, suggesting that foreign PEFs are not in the friendly investors' zone.
PEFs, including Lone Star, have been criticized here for using legal loopholes to avoid paying taxes on their capital gains. Lone Star, the largest shareholder of the Korea Exchange Bank (KEB), was recently found guilty of stock price manipulation involving its acquisition of KEB's credit card unit.
On question regarding Korea's reputation for xenophobia, the policymaker said, ``What we don't like is speculative investors, such as those pursuing only short-term speculative gains in the currency markets.''
``We welcome all the foreign investors coming to seek long-term investment gains,'' he added.
He stressed that now is the right time for foreigners to make investments into Korea, given that the Lee Myung-bak administration is deregulating to a business-friendly environment.
``What I mean is that it is a good chance for foreigners to invest in Korea betting on big potential lying ahead," he added. ``Since deregulation measures take effect from June, business environments will improve in the short run.''
In a desperate bid to turn around the falling economy and sustain economic growth, top policymakers have been cheerleading to attract inbound investment.
At an investor relations meeting held on Wednesday in London, Strategy and Finance Minister Kang Man-soo said that the government will step up efforts to create a business-friendly environment through deregulation, tax reduction and better labor-management relations.
However, many foreign investors and analysts monitoring Korea are discounting such friendly gestures, saying that the key problem is the underlying attitude behind them.
``Survey evidence suggests that international business leaders regard policy uncertainty and the bureaucratic implementation of regulations as the biggest obstacle to doing business in Korea,'' Marcus Noland, a senior fellow at the Peterson Institute for International Economics, told The Korea Times.
``Moreover, in a whole series of high profile cases, the Korean political system appears to have acted with hostility toward foreign investors or potential investors,'' he added.
Mauro F. Guillen, director of the Lauder Institute at the Wharton School, University of Pennsylvania, also said, ``Foreign firms continue to view Korea as a country that discriminates against foreign investors and does not welcome them.
``In addition, Korea has not been aggressive enough in privatizing service and infrastructure industries.'
Aside from reform measures to deregulate markets, the foreign expert stressed that Korea must change its attitude against foreign investors.
``Before attracting inbound investment, Korea must repair Korea's reputation for xenophobia,'' Noland of the Peterson Institute said.
``This will only change over time as more foreign firms have positive experiences in the Korean market, and the stories in the world financial press revolve around their successes,'' he added.
Net foreign direct investment (FDI) ― FDI inflow minus outflow ― dropped in the first quarter for the first time since the third quarter of 2006.