GAP IN POLLS CLOSING BETWEEN TWO GNP HEAVYWEIGHTS

UNCLAS SEOUL 002048

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: PGOV PREL KS
SUBJECT: GAP IN POLLS CLOSING BETWEEN TWO GNP HEAVYWEIGHTS


1. (SBU) SUMMARY: The gap in polls between the frontrunner
Lee Myung-bak and his rival Park Geun-hye from the
conservative Grand National Party (GNP) started to drop off
significantly in recent weeks. The shrinking gap comes from
Lee's falling popularity amid revelations by Park's camp and
the ruling Uri Party about his alleged involvement in
investment fraud and shady real estate dealings. An
"official" report casting doubt on his canal project has also
impacted Lee's poll numbers. Public polls for Lee and Park
are crucial as their result counts for 20 per cent of the
candidates' scores in the GNP primary. Pundits posit that
Lee's decrease in polls could accelerate if more scandals
emerge. END SUMMARY.

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LEE MYUNG-BAK'S SHAKY LEAD IN POLLS
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2. (U) The latest polls show that presidential frontrunner
Lee Myung-bak of the Grand National Party maintains a 6.5
percent to 15 percent lead over his rival Park Geun-hye. In
polls conducted on June 30, the difference between the two
was 6.5 per cent (Herald Media),11.8 per cent (Chosun Ilbo),
12.8 per cent (SBS),13.9 per cent (Donga Ilbo) and 15.4 per
cent (MBC). Lee scored 34.9 - 39.8 per cent while Park
garnered 24.9 - 27.6 per cent of the public support. (Note:
the polls surveyed 1,000 - 1005 adults nationwide. End
Note.)


3. (U) Although Lee has maintained his lead over Park, the
gap between the two candidates has significantly decreased,
compared to polls earlier this year. According to a poll
conducted by Herald Media and KM Research Co. on December
26-27, 2006, Lee boasted sweeping popularity by garnering
42.6 percent of support, well ahead of Park Geun-hye's 23.9
percent. (Note: the poll surveyed 1,000 adults nationwide.
End Note.) In February 2007 polls, Lee Myung-bak scored 43.9
percent and 47 per cent in two polls, while Park scored 17.9
per cent and 19.4 per cent. (Note: The first poll was done
by Korea Research Center and Donga Ilbo; the second poll by
Hankyoreh and Research Plus.) Therefore, Lee's lead had
declined from 20-25 to around 10 per cent in about a month or
so.

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BBK DEAL: LEE'S ALLEGED INVOLVEMENT IN INVESTMENT FRAUD
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4. (U) June was a brutal month for Lee as he was shrouded in
scandals. Since early June, Lee has been continuously
attacked by the Park camp and Uri Party as they accused Lee
of being involved in stock manipulation and real estate
speculation. On June 11, Representative Park Young-sun from
the Uri Party argued during a plenary National Assembly that
Lee previously had an illicit business relationship with a
now-bankrupt investment firm, BBK. According to press
reports, Lee invested in the firm, established in February
2000 by a Korean-American businessman, Kim Gyeong-jun. In
2001, Kim allegedly spread false information to manipulate
BBK's stock price and embezzled KW 38 billion (USD 41
million) of the firm's money. Kim then was arrested by U.S.
federal authorities in 2004 and is awaiting extradition to
Korea. Joining the Uri Party's attack on Lee, Park's camp
also argued that Lee was the firm's actual owner, not just an
investor. Lee's camp refuted the claim, saying that "Lee has
no relationship with BBK, and BBK is solely operated by Kim
Gyeong-jun," and made public the document issued by the Seoul
prosecutors in April 2002 that cleared Lee.

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CANAL PROJECT: GOVERNMENT CONSPIRACY VS. ILLEGAL RESEARCH
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5. (U) However, the so-called BBK scandal was only the
beginning of several trials. One of Lee's main campaign
pledges is the "Pan-Korea Waterway Project," which aims to
connect the country by canals. The canal project's economic
and environmental feasibility has been at the center of
political debates. On June 4, the Korean publication
Economist, an economic news weekly, reported on a 37-page
report by South Korean government agencies, which claimed
that the canal project was not feasible neither financially
nor environmentally. (Note: Korean Economist is different
from the U.K.-based magazine, Economist. End Note.) When
questioned by the National Assembly, Construction Minister
Lee Yong-seop said the 37-page report was not a government
document, but admitted that the ministry had submitted a
different, 9-page report on the project to the Blue House.
The ministry then submitted the 9-page original report to the
National Assembly, which proved virtually identical in
substance to the leaked 37-page report.


6. (U) Although the leakage of the report helped to bolster
Lee's argument that liberals are conspiring to destroy him
and the Blue House is the "big power" behind the alleged
conspiracy, the canal project saga continued to work against
him. On June 22, Seoul Metropolitan Police raided the
city-affiliated Seoul Development Institute, Seoul Economic
Research Center and offices of three Sejong University
professors to further investigate the matter. They were
investigating whether a report prepared by the Institute and
the Center when Lee was a mayor of the capital was conducted
for the purpose of working out his eventual campaign pledge,
hence violating an election law.

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SUSPICION OF REAL ESTATE SPECULATION
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7. (U) On June 12, an Uri Party lawmaker and presidential
hopeful, Rep. Kim Hyuk-gyu, raised the suspicion of false
resident registration by Lee Myung-bak's wife. At a press
conference in the National Assembly, Kim argued that Lee's
wife changed her address fifteen times from 1978 to 1998,
mostly in Kangnam, possibly for investment in the area's real
estate, but failed to produce evidence to support his claim.
Pointing out that two Prime Ministers from Kim Dae-jung
administration failed to be confirmed by the National
Assembly because of similar accusations of real estate
speculation, Kim called for Lee's clarification. Lee later
admitted the fact and apologized, saying that the false
resident registration allowed his children to attend good
schools in the affluent Kangnam area and for him to run for
office in a different district from which he lived.


8. (U) On July 2, Kyunghyang Shinmum, a pro-government
Korean newspaper, reported that Kim Jae-jung, Lee's
brother-in-law currently owns properties in 47 different
regions nationwide, and raised suspicions of real estate
speculation. The article stated that beginning with
1,657,334 square-meters of forest land in North Chungcheong
Province in 1982, Kim bought properties covering 2.24 million
square-meters in 47 different regions between 1981 and 1991.
Responding to the report, Lee's camp said, "Kim's real estate
transactions have no direct relation to Lee." Meanwhile, Kim
sued for libel the newspaper that ran the article and asked
for KW 1.5 billion (USD 1.6 million) in reparation, saying
that the article was a malicious defamation.


9. (U) On July 3, Hankyoreh, a liberal Korean newspaper,
reported that Lee, while mayor of Seoul, lifted restrictions
on building heights in Seocho-dong, Seocho-gu, where he owned
a building. The newspaper also claimed that Lee and his
relatives' properties were in Eunpyeong-gu, which was
designated by the then-mayor himself as the 'New Town' for
development, and raised suspicions on the designation
process. Refuting the claims, Park Hyeong-jun, a spokesman
for Lee's camp, said "removal of the height restriction was
already demanded by the Board of Audit and Inspection and the
Ombudsman of Korea (before Lee took action)." He added that
the real estate Lee owned in Eunpyeong-gu was only 142
square-meters, which he sold before the designation.


10. (U) On July 5, Hankyoreh again accused Lee and his
relatives of profiting from real estate dealings
inappropriately. According to the paper, his brother and
brother-in-law, Kim Jae-jung, allegedly bought a land parcel
in Dogok-dong totaling approximately 1,313 square-meters when
Lee was CEO of Hyundai Engineering and Construction. They
then sold it, together with some other land sites, to POSCO
Engineering and Construction in 1995 and profited KW 26.3
billion (USD 28.6 million). In addition to this report, Seo
Cheong-won, an advisor to Park Geun-hye, alleged that Lee,
Lee's brother and brother-in-law owned a 6,555 square-meter
site in Dogok-dong. Seo argued that "Lee met with the POSCO
president three times between 1993 and 1994 and is known to
have asked him to buy the site, saying that it is his."
Lee's camp countered the argument, saying that the sale of
the site was legitimate and that the issue was verified as
compliant with all regulations during the 2002 Seoul mayoral
elections, which Lee sub
sequently won.


11. (U) On July 6, Seoul Prosecutors' Office announced that
they would investigate the libel and counter-libel suits
between Lee's camp and Park Geun-hye's camp, stemming from
the alleged illegal real estate dealings. It would not only
subpoena Kim Jae-jung, Lee's brother-in-law, but also look
into Lee's alleged illegal property deals. While Lee's camp
strongly resisted, the Park camp welcomed the move.
Concerned whether this will lead to a replay of the 2002
election, where the many suspicions and prolonged
investigation proved detrimental to the party, GNP officials
urged both camps to retract their charges.

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ANOTHER FIGHT EXPECTED
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12. (U) Although Lee has kept his lead in polls, Lee and
Park are expected to fight over rules on public polls which
would make up 20 percent of the GNP primary in August. At
the first meeting of the GNP Public Poll Expert Committee on
June 29, the representatives from the two camps butted heads
over how to word the question that would assess the
candidates' popularity. Lee's camp argued that the question
should measure the respondents' "preference" by asking them
"whom they prefer as the GNP presidential candidate." Park's
camp maintained that the question should measure their
"support" by asking them "whom they would vote for on the day
of election." Pundits on public polling say that respondents
"prefer" a candidate even if they don't fully support him;
but answering the "support" question requires them to be more
committed to the candidate. Lee's supporters are considered
to be less committed to Lee, compared to Park's supporters.
Thus, he prefers the "preference" questions while Park
prefers the "support" question.

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COMMENT
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13. (SBU) Scrutiny on Lee and mudslinging between the two
GNP frontrunners will peak as the GNP Verification Hearing
comes around on July 19. It is an open secret that the
ruling camp considers Park Geun-hye to be an easier candidate
to beat in December than Lee Myung-bak. Thus facing
incessant attacks on two fronts, Lee has taken a severe
beating, resulting in an enormous slide in his poll numbers.
If Lee cannot turn this around, all bets are off on what
appeared to be a shoo-in candidacy only a month ago.
VERSHBOW