Ex-Moon aide calls for policymakers to be audited, main opposition demands special counsel probe
Single-stock leveraged exchange-traded funds tied to South Korean chip firms are becoming a thorn in the government's side, as a major liberal politician added to calls for an investigation into the administration's decision to allow them.
Conservative opposition members had already called for a probe. The funds, introduced in May, have been blamed for stock market volatility that at one point saw the Kospi lose nearly 40 percent of its value.
Cho Kuk, former chair of the minor liberal Rebuilding Korea Party, said Wednesday that Cheong Wa Dae is to blame for the heightened volatility in the Korean stock market, which posed "a serious crisis of trust."
In a Facebook post, Cho, who was previously a close aide to former President Moon Jae-in, suspected that President Lee Jae Myung's office had encouraged financial firms to launch the controversial investment products.
"We cannot simply neglect the blatant failure of government-controlled finance," Cho said.
Cho called on Cheong Wa Dae to carry out an inspection of high-ranking policymakers such as Kim Yong-beom, chief presidential secretary for policy; Yoon Chang-ryul, who was then the minister of the Office for Government Policy Coordination; Lee Eog-weon, chair of the Financial Services Commission; and Lee Chan-jin, governor of the Financial Supervisory Service.
Kim had used a closed-door meeting in January persuade policymakers to revise capital market rules in April to allow single-stock leveraged ETFs to be listed in May, according to Cho, who described the process as "mysterious" and "unacceptable."
Following a record bull run that extended to mid-June, the bourse has been on a roller-coaster ride, leading to the forced liquidation of stock accounts of those who made risky bets like investments in leveraged ETFs. Over 60 percent of such accounts were held by those in their 30s.
The ETF market cap lost over 130 trillion won ($91.2 billion) in just eight days in July.
More than 70 temporary suspensions of trading have been triggered by sharp movements the Korea Exchange's main board Kospi and the tech-focused Kosdaq exchange this year.
An inspection by Cheong Wa Dae to determine who is accountable for the policy failure is "essential for the success of the Lee Jae Myung administration," Cho said.
Rep. Jang Dong-hyeok, chair of the main opposition People Power Party, called Wednesday for a special counsel to look into how the decision to allow leveraged ETFs was made.
Jang claimed that the decision to allow leveraged ETFs was pushed through by the administration despite obvious risks, raising suspicions that corruption may have been behind the decision.
People Power Party Floor Leader Rep. Jeong Jeom-sig also renewed his call Wednesday for a parliamentary probe into the state's decision-making process of introducing the risky financial products.
A parliamentary investigation is the only chance to gather presidential aides including Kim and ministerial level officials to question how single-stock leveraged ETFs were introduced, according to Jeong.
The ruling Democratic Party of Korea's senior spokesperson Rep. Kang Jun-hyeon said Monday the case was unlikely to be subject to an Assembly probe, after Jeong had proposed one.
"The ruling party seems to believe that conducting a parliamentary investigation would place an increased political burden on the ruling bloc," Jeong said Wednesday.
Even the televised debate among the ruling Democratic Party's leadership contenders touched on the matter of who was accountable for the launch of leveraged ETFs.
Rep. Jung Chung-rae, who is running for party chairman after nearly a year in the role, said his rival Rep. Kim Min-seok, who was the prime minister at the time the decisions on leveraged ETFs were made, was partly responsible for the situation.
Jung also criticized Kim for shutting the ruling party out of the decision-making process, adding he would have opposed the decision had he been involved.
Rep. Song Young-gil, another leadership contender, said the ruling party's exclusion indicated the administration's lack of confidence in the party under Jung's leadership.
Meanwhile, an opinion poll by Hangil Research released Wednesday showed that 54.2 percent of 1,000 respondents expressed disapproval of South Korea's stock market policy, while those who approved of the policy amounted to 38.3 percent of all respondents.
Among those in their 30s, nearly 70 percent disapproved of the stock market policy.
Alongside the stock market volatility, a new tax policy to increase homeowners' taxes is piling pressure on the government. The Hangil Research opinion poll showed that 57.6 percent of respondents disapproved of the tax code revision, 22 percentage points higher than those who approved of the new tax scheme.
Over 70 percent of respondents in their 30s were unsatisfied with the tax code.
consnow@heraldcorp.com
