[Newsmaker] Korea’s vice president of AIIB taking leave

Hong Kyttack, the Korean vice president of the Asian Infrastructure Investment Bank since February, has taken a six-month leave of absence from the Beijing-based institution amid a scandal back home surrounding his previous stint at Korea Development Bank.

“Hong cited personal reasons for the leave,” Seoul’s Finance Ministry official said, confirming Hong’s absence at AIIB since last week. The Korean executive was absent at the regional bank’s maiden general meeting in Beijing on June 25, where finance ministers of most of its 57 member states, including Korea’s Yoo Il-ho, gathered. 

As one of the AIIB’s five vice presidents and chief risk officer, Hong was only four months into his three-year term.

AIIB, envisioned by China as a rival to the U.S.-led World Bank and Asia Development Bank, was officially launched in January this year. Hong taking leave at this point of time is widely seen as a precursor to resignation.

Korea earned the AIIB vice presidency after a $3.7 billion contribution to its $100 billion initial paid-in capital, to be paid over the next five years. Korea has the fifth largest stake -- 3.81 percent -- in AIIB, after China, India, Russia and Germany.

Mindful of this, Finance Minister Yoo said Wednesday that Korea hopes to field a candidate for Hong’s replacement.

A key reason behind his sudden departure seems to be a revealing interview he did earlier this month with a Korean daily regarding the KDB’s alleged mismanagement of subsidiary Daewoo Shipbuilding & Marine Engineering while he was the state-run bank’s CEO.

Key decisions, particularly those concerning bailouts of large companies like DSME, came from high above him, Hong claimed, saying that presidential aides and top government officials were the real decision makers.

DSME, Korea’s second-largest shipbuilder, became a subsidiary of KDB in 2000, as a result of a near 2 trillion won ($1.73 billion) state bailout. KDB, along with the Export-Import Bank of Korea, injected fresh funds of 4.2 trillion won into the shipbuilder when it reported a record loss in 2015.

A recent governmental audit has found that the company cooked its books to hide losses in an over 5 trillion won accounting fraud, while KDB sat idle on its duty to check the shipbuilder’s finances.

Public prosecutors investigating the allegations are seeking an arrest warrant for Nam Sang-tae, the detained former CEO of DSME.

“It (providing new funds to DSME) was decided by Cheong Wa Dae, the Finance Ministry and the financial authorities. KDB had no say in it,” Hong said in the interview. The decision was made at unofficial meetings held by top economic and financial officials at the western auxiliary building of Cheong Wa Dae, he revealed.

The remarks stirred controversy over the opaque way Korea’s economy is being run. The so-called “western auxiliary building meetings” date back to the Asian financial crisis in late 90s, local media reported. No official record has been kept on the meetings as to when they were held, who attended and what was discussed.

Hong ran KDB from 2013 until February this year, before joining AIIB. Prior to that, he taught economics at Chung Ang University in Seoul after earning a Ph.D. in economics from Stanford University in the U.S.

By Lee Sun-young (milaya@heraldcorp.com)