By Yoon Ja-young
Lawmakers battered the Korea Investment Corporation (KIC) for its huge investment losses at a National Assembly audit, Tuesday. One of them said KIC has no reason to exist as trade account turned into a deficit.
Rep. Kim Hyo-seuk of the main opposition Democratic Party (DP) criticized KIC which lost 850 billion won in its investment in Merrill Lynch. ``It recorded 32.5 percent investment loss in nine months,'' the lawmaker added.
He said KIC should be totally banned from investing in stocks.
``The KIC fund is composed of the foreign exchange reserves of the Ministry of Strategy and Finance and the Bank of Korea. It isn't like sovereign funds of other countries. Stability should be its first priority,'' the lawmaker said. He said KIC shouldn't use foreign exchange reserves for stock investments.
Rep. Kang Sung-jong, also of the DP, pointed out that Merrill Lynch was KIC's first direct investment since its launch. He compared the $2 billion investment to picking a fruit that is just about to rot.
He also criticized that KIC does 62 percent of its investment through an outside management firm. ``KIC has 69 people, including executives, and 36 among them are investment professionals. However, these professionals have made only one investment so far, Merrill Lynch."
Rep. Na Seong-lin of the governing Grand National Party said KIC has no reason to exist. ``KIC was set up based on the overly positive outlook on foreign exchange reserves and the wrong premise that the trade account surplus will continue,'' the lawmaker said. ``Now that it has been proved that the premises can't continue, KIC seems to have lost the reasons for its existence.''
The lawmaker said sovereign wealth funds are generally set up by exporters of oil or raw materials, or with a government account surplus. ``Once the national pension starts payment en masse, government finance is expected to be in deficit. The current account deficit has also been continuing since November 2007.''
He also criticized KIC for making too much indirect investment as it increases the asset management commission burden on the central bank and the finance ministry.