On Feb. 15, then President-elect Lee Myung-bak talks with Mohammed Al-Shaibani, head of the Investment Corporation of Dubai, at his office after the emirate decided to invest $2 billion in large-scale projects including the Saemangeum project. / Korea Times File

By Kim Yoo-chul
Staff Reporter

The new government, which has vowed to give top priority to reviving the sagging local economy by attracting more foreign investments, will go ahead with drastic deregulation measures.

On top of that, there is a corporate tax cut. The new government is set to cut coporate tax rates from 25 percent to 20 percent by 1 percentage point every year during his five-year term. In South Korea, companies earning over 100 million won in taxable income are subject to up to 25 percent in corporate tax.

In order to back up a drop in tax revenues, the government plans to cut its spending by as much as 20 trillion won by eliminating unnecessary spending.

In another deregulation measure to boost corporate investment, the government will seek to ease or scrap rules forbidding local conglomerates from owning banks.

Under the ``Industrial Capital Law,'' industrial capital has been barred from buying more than 5 percent stake in local banks over the past 10 years out of concern about the rapid increases of influence by conglomerates on the nation's financial markets.

Critics say the regulation has made local banks more vulnerable to hostile takeovers by overseas corporations and repeatedly voiced the need to, saying it is a key pre-condition to attracting more foreign capital at a time when there are no ``barriers'' between industrial capital and financial capital in international markets.

``Major conglomerates already have their private banks through non-bank financial institutions,'' said Lim Yang-taek, a finance professor of Seoul's Hanyang University.

The new government will hear the call to gear up educational and leisure-related massive projects around Seoul Metropolitan Areas, which had also been restricted under the former Roh Moo-hyun administration, which had been seeking to ``balanced regional growth''.

Such ambitious but achievable pledges have been gaining good marks at least for local firms.

According to a recent survey of the nation's top 600 companies excluding financial firms by the Federation of Korean Industries (FKI), their investment in new plants and equipment is expected to rise 14 percent to 92.4 trillion won or about $98 billion this year ― the largest since 2004. In 2007, the companies' facility investments came to 81.1 trillion won, a meager increase of 5.1 percent from the previous year.

``The outcome reflects increased expectations that the new government will create a `business-friendly' environment by consistently pushing deregulation, a main factor in deciding investments,'' an official from the nation's big business lobby said.

``It would be possible that the South Korean economy will realize 6 percent growth annually through deregulation,'' said Prime Minister-nominee Han Seung-soo said in his confirmation hearing at the National Assembly.

Good Signs for Foreign Capital

It seems too early to tell whether such deregulation proposals and ``business-friendly'' catchphrases will give a good signal and fuel a fresh momentum to idle big foreign investors. However, the new government has shown impressive initial results.

On Feb. 15, then President-elect Lee Myung-bak struck a $2 billion investment deal with the emirate of Dubai. Moreover, six overseas funds and companies have so far submitted letters of intent to invest in the massive Saemangeum and a separate project to construct cross-country waterways.

Saemangeum is South Korea's largest area of tidal flats, with about 40,100 hectares based in North Jeolla Province. Lee wants to use the newly created land space to build a contemporary city like Dubai, devoting much of the land to industrial projects.

Besides, the government has reportedly been told to let the foreign investment committee under the president's direct control in a goodwill gesture to lean toward foreign investments.

``The first one or two years would be significantly important for the government in deciding foreign investors' stances against the new regime,'' said Kim Ji-yong, a manager for U.S.-based logistics company.

Foreign investment dropped 6.5 percent year-on-year to $10.5 billion last year, from $11.2 billion in 2006, according to recent data from the Ministry of Commerce, Industry and Energy. The figure stood at $11.6 billion in 2005.

yckim@koreatimes.co.kr