South Korea's Lee Faces `Lame Duck' Test as Plan for New City Is Canceled

South Korean President Lee Myung Bak’s administration reversed course on a $13 billion plan to develop a new city after lawmakers rejected a proposal to get businesses instead of government agencies to move there.

The National Assembly yesterday rejected a proposed revision of the previous administration’s plan to move nine ministries and four government agencies into Sejong City, 150 kilometers (93 miles) south of Seoul. Lee’s government instead proposed Samsung Group and other companies should invest there.

“I respect the National Assembly decision and will do my best to develop Sejong city into a good city,” Prime Minister Chung Un Chan said today in a televised speech. “The nation should no longer be divided over this issue and I hope the controversy ends with this.”

It was the latest defeat for Lee’s Grand National Party, after a surprise loss in local elections on June 2 and escalating tensions with North Korea over the alleged torpedoing of the Cheonan warship.

“President Lee will start having to make compromises on his key domestic agenda if he doesn’t want to further alienate himself from the public,” said Park Kie Duck, a senior research fellow at the Seongnam, South Korea-based Sejong Institute. “That would signal the beginning of Lee’s lame-duck status.”

The government’s Sejong plan was rejected by 164 votes to 105, with six abstentions. Lee’s Grand National Party has 168 seats in the unicameral 299-member parliament, while the main opposition Democratic Party holds 84.

Lee is halfway through his single five-year term, which ends in February 2013. Under South Korea’s constitution he cannot stand again. The election for the next president is slated for December 2012.

‘Full Responsibility’

Chung said he will take “full responsibility” for not being able to push through the revised plan, without elaborating. He reiterated his stance that the new plan would have been more effective in fueling regional development.

Samsung, Lotte Group, Hanwha Group and Woongjin Group pledged 4.4 trillion won ($3.6 billion) of investment in Sejong City under the new plan. At least 16.5 trillion won would have been spent on the project and investments would have grown as more companies and universities moved into the town, lured by tax incentives and other benefits, Chung said in January.

More than 5 trillion won has already been spent for the project under the original plan for an administrative town, mandated by laws that were passed in parliament in 2005.

Reach Out

Lee needs to reach out to other members of his party like former Grand National Party Chairwoman Park Geun Hye, who leads a faction critical of Lee, to ensure his leadership doesn’t weaken, said Kang Won Taek, professor of political science at Soongsil University in Seoul. Park, who lost to Lee in elections for the party endorsement as a presidential candidate in 2007, had opposed the revised Sejong plan.

“The latest policy failure may provide a chance for President Lee to try to forge unity within his own party,” said Kang. “It is absolutely necessary for Lee to maintain his approval rating.”

Lee’s approval rating stood at 39.4 percent last week, after dropping to below 40 percent for the first time this year in the second week of June, according to surveys by research company Realmeter. The surveys of 5,000 South Koreans nationwide aged 19 or older were carried out between June 7-11 and June 21- 25 and had a margin of error of plus or minus 1.4 percentage points.

To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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