The Shepherd Boy and the Wolf. Exaggerated crisis warnings lead to loss of trust. Hanmi Ilbo Graphic

Following the South Korea-U.S. summit, the Lee Jae-myung administration continued to pat itself on the back, calling it a "successful negotiation." However, statements made by the President himself in an interview with Reuters directly contradicted these claims. 

Yet, instead of apologizing to the public, President Lee Jae-myung is attempting to evade responsibility for the negotiations by resorting to the rhetoric of "coercing cash investments." 

So, is the "coercing cash investments" claim made by the President true? This fact-check judges that this assertion is also highly likely to be distorted.

In the interview, President Lee Jae-myung stated, through an interpreter, "If we withdraw $350 billion as the U.S. demands without a currency swap and invest it in cash in the U.S., South Korea will face a situation similar to the 1997 financial crisis." 

He warned the public, suggesting that the U.S. was pressuring negotiations based on the prerequisite of a massive cash outlay. 

However, when considering the statements from the U.S. side and the already signed U.S.-Japan negotiation documents, the structure differs from a simple cash investment as warned by the President. 

U.S. Secretary of Commerce Howard Lutnick stated in an interview with CNBC, "We give them the project & they pay for the project." 

This indicates a "capital call" structure, where payments are made within a certain period for each designated project, rather than a lump-sum payment of a large amount. The $550 billion investment memorandum of understanding that Japan signed with the U.S. in July was also designed within the same framework. 

The issue lies in the differing circumstances between South Korea and Japan. Japan possesses $1.2 trillion in foreign exchange reserves, the Japanese Yen as an international reserve currency, and the safety net of an unlimited currency swap with the U.S. In contrast, South Korea's foreign exchange reserves are only $420 billion, the Korean Won is not a reserve currency, and the possibility of securing an unlimited swap is low. 

Therefore, even if South Korea enters into an investment agreement with the same structure, it could effectively feel like pressure akin to a cash investment. President Lee's remark about a "recurrence of the foreign exchange crisis" was essentially a political emphasis on these disadvantageous conditions. 

However, what is crucial in actual negotiations are the detailed clauses, not just the total investment amount. 

In Japan's case, the payment deadline after project designation is set at four months, and arrangements were made regarding the funding method (whether cash, loans, or guarantees are allowed), profit-sharing structure (50:50 before principal recovery, then 90% for the U.S. and 10% for Japan), veto rights and sanctions clauses, and loss-sharing in case of failure. President Lee Jae-myung's phrase "detailed agreement ensuring commercial rationality" refers precisely to these details. 

The unlimited currency swap proposed by South Korea has almost no possibility of realization. The U.S. has historically only provided unlimited swaps to countries with reserve currencies such as the European Central Bank, the Bank of Japan, and the Bank of England. In fact, during the COVID-19 financial crisis in 2020, the U.S.-Korea swap was only a temporary measure of $60 billion. 

Experts point out that South Korea should pursue realistic alternatives such as a conditional swap or the FIMA repo (a system where foreign central banks deposit U.S. Treasury securities with the Federal Reserve and borrow short-term dollars). Mechanisms such as allowing installment payments or guarantees are also cards that can mitigate shocks to the foreign exchange market. 

An international finance expert, who requested anonymity, said, "The U.S. did not want cash investments but preferred a capital call structure," and added, "South Korea should focus its negotiation leverage on securing flexibility in funding." He emphasized, "By actively utilizing systems like FIMA repo and combining conditional swaps with installment payment mechanisms, the impact on the foreign exchange market can be minimized." 

Ultimately, the essence of this negotiation is not simply about how much money is paid. The detailed conditions of "when, how, and by whose authority it will be executed" will determine the success or failure of the South Korean economy. 

President Lee's warning of a "foreign exchange crisis" may be effective in heightening a sense of crisis politically, but it can be perceived as an overreaction in diplomatic negotiations. 

It is particularly dangerous diplomatically if such messages are interpreted as a political maneuver to provoke anti-American sentiment and seize the initiative in negotiations. If emotional confrontation intensifies, South Korea may incur unnecessary costs rather than securing tangible benefits. 

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