[Inside Chodong] President Lee's Second Year: The Time for Transformation

Declaration of a "Grand Transformation" Beyond Normalization
Proving Progress Through Tangible Results for the People

The Lee Jaemyung administration has entered its second year in office. Due to the previous administration's critical mistakes, the past seven months have been spent pouring in more than a year's worth of effort into normalization and recovery. The President's remark at the beginning of his term, "I wish a day had 30 hours," was another way of expressing the pressure to achieve both resolution and normalization simultaneously.

President Lee has put forward "a great leap through a grand transformation" as the key national agenda for 2026. The circumstances are far from easy. Major institutions forecast a growth rate of 1.6% to 1.8%, which still falls short of the potential growth rate of around 2%. In addition to the decline in the working-age population, the slowdown in total factor productivity (TFP) and the deceleration of capital investment growth are compounding the situation, resulting in a weakening of the country's earning power.

There is an immediate burden from the won-dollar exchange rate and household debt. If the weakness of the won continues amid heightened exchange rate volatility, the prices of imported energy, food, and parts will rise sharply, which will in turn be passed on to electricity and gas rates as well as consumer prices. Companies will face increased cost pressures, while households will experience a decrease in real income, leading to subdued consumption. It was symbolic when Policy Chief Kim Yongbeom summoned the chief financial officers (CFOs) of the seven leading export companies at the end of last year and urged them not to engage in actions that could be suspected as "dollar hoarding or seeking foreign exchange gains," and to cooperate in stabilizing the market.

Yonhap News Agency

Household debt, which amounts to 90% of gross domestic product (GDP), and the unpredictable real estate prices are also sources of concern. The Bank of Korea has analyzed that the excessively accumulated household credit since 2013 has slowed the annual growth rate of private consumption by 0.40 to 0.44 percentage points each year. If the household debt-to-GDP ratio had remained at the 2012 level, the "level" of private consumption in 2024 could have been about 4.9% to 5.4% higher than it actually is. This is a structural problem.

The government has made repeated adjustments to loans, taxation, and supply in the real estate sector, which has fueled household debt, but instability persists. The "illusion" created by a small number of transactions has heightened fear, and the supply measures that were supposed to be released after tightening loans and buying time have been delayed into the new year. Regulation can buy time, but it cannot substitute for trust. If the supply measures, which are expected after much deliberation, fail to gain trust, the President's assessment that "the means of asset accumulation are diversifying and becoming sound," as seen in the record highs of the KOSPI, will inevitably lose credibility.

In industry, tangible results must continue in the fields of artificial intelligence (AI) and defense. While Kang Hoonshik, the Presidential Secretary for Defense Industry, is reporting export contracts, what is more important is the creation of a sustainable and tangible "industrial ecosystem." AI requires the integration of data, electricity, semiconductors, and talent, while defense involves a long-term perspective that includes post-export maintenance, parts, training, and local cooperation.

Achievements are also needed in the fields of diplomacy and trade, where "pragmatism" has been emphasized. Last year, the administration focused on returning to the international stage and demonstrating multilateral leadership with the message "Korea is back," and made every effort in the Korea-US tariff negotiations to minimize losses. This year, the focus must be on reducing tariff and non-tariff barriers, mitigating supply chain risks, and achieving export diversification. In Korea-China relations, the administration must work to lift the ban on Korean cultural content (Hallyu Ban), and in cooperation with the "Global South," it must build projects that combine aid, exports, and talent exchanges, while expanding pathways for small and medium-sized enterprises to enter these markets together.

President Lee has stated, "Let us create a new standard for growth and progress that the world will follow." He also emphasized that this is not a romantic ideal or mere wishful thinking. Having normalized state affairs, the administration now stands at the starting point where it must prove this "grand transformation" with tangible results, together with the people.