By Kim Jae-kyoung

There is an old saying in the business world that uncertainty is worse than living with bad policies because it sends business onto the sidelines, rather than on the playing field of the economy. It can also apply to the investment sector as uncertainty scares away foreign money.

In this regard, President Lee Myung-bak and his administration have failed, with many economic and financial policies lacking consistency. Of late, there are a couple of cases that have further increased uncertainty here ― the delay of the Financial Services Commission (FSC)’s approval on the sale of Korea Exchange Bank (KEB), the government’s extended profit-sharing scheme and pension funds’ exercising of voting rights.

Among them, the sale of KEB by Lone Star Funds is a case in point. The fund, the largest shareholder of KEB, has agreed to sell its controlling 51.02 percent stake in KEB to Hana Financial Group, but the deal is adrift as the financial regulator has delayed giving its approval.

The U.S. buyout fund’s exit plan hit a snag after the Supreme Court early last month overturned the High Court’s not-guilty ruling for the former head of the private equity fund’s Seoul office. However, what’s behind the postponement was not the court’s decision but political pressure to delay a decision on controversial issues that can deal a blow to President Lee Myung-bak and his administration, which are already reeling from the lame duck phenomenon.

This is not the first time the fund has attempted to sell KEB. In 2007, it inked a deal with HSBC. But every time, the KEB sale has folded as the government has held off approving the deal in the face of growing anti-foreign capital sentiment.

Foreign businesses and investors are puzzled over what’s in financial regulators’ minds. A lot of foreign companies and investors have been frightened by policy inconsistency, which has had an impact on foreign investment coming into Korea.

In domestic policies toward businesses, the Lee administration has also failed in ensuring consistency. Since he took office, Lee has continued to zigzag between growth and distribution, discouraging local conglomerates from making fresh investments.

In the first half of his tenure, President Lee introduced a number of policies in favor of large businesses, including weak won policies during the global financial crisis. But with his presidential term turning into its second half in 2010, he tipped the balance in favor of smaller firms and the working class by unveiling his vision to create the so-called fair society.

Former Prime Minister Chung Uhn-chan, who currently serves as chairman of the Commission for Shared Growth for Large and Small Companies, suggested in February that larger corporations share part of their profits with their subcontractors under an extended profit sharing system.

In another attempt to check chaebol, Kwak Seung-jun, the chairman of the Presidential Council for Future and Vision, proposed in April that the NPS should take the role of a corporate watchman and be more active in appointing CEOs of firms where it has a stake.

Remarks by Lee’s aides have received mixed responses but they have created stirs in the business and political arenas and raised more questions on the stance of the Lee administration. What have made businesses more uncomfortable is that such remarks came without coordination between Cheong Wa Dae and the government, which has further escalated business uncertainty here.

As a result, local chaebol are sitting on cash reserves shunning investments. According to the LG Economic Research Institute, the average ratio of cash and cash equivalents to total assets for Korean companies reached 10.2 percent in April, well above the world’s average of 9.6 percent.

President Lee and the government should remember that business activities can abound only when policies maintain consistency and minimize uncertainty. In a similar vein, Korea’s financial regulator should make efforts to make rules more lucid in order to attract more inbound investment.

People often think that deregulation is getting rid of regulations but giving specificity is another kind of deregulation and it can give greater predictability. Much of the need for deregulation stems from the need for greater transparency and eliminating uncertainties and ambiguities.