UNCLAS SEOUL 002067

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PREL ECON OREP ETRD KS KN
SUBJECT: SENATOR HAGEL MEETS PRESIDENT LEE

REF: SEOUL 02052 (SENATOR HAGEL MEETS ROKG OFFICIALS)


1. (SBU) SUMMARY: South Korean President Lee Myoung-bak
received visiting Senator Chuck Hagel, accompanied by
Ambassador Stephens, October 15 for a lengthy, cordial
meeting that exceeded the allotted 30 minutes. NSA Advisor
Kim also participated. President Lee was interested in
hearing Senator Hagel's assessment of the U.S. financial
crisis and of prospects for FTA ratification. Lee expressed
confidence in underlying U.S. economic strength and
resilience but said Koreans were "nervous," adding that any
emerging financial architecture should include Korea. On
North Korea, President Lee emphasized his strong support for
recent U.S. steps in delisting the DPRK and reaching a
verification agreement, observing that stronger parties
sometimes have to be more flexible in the short term in order
to achieve their larger goals. END SUMMARY


2. (SBU) After initial pleasantries, President Lee turned to
the global financial crisis, noting Korean nervousness about
the situation and asking Senator Hagel's assessment of the
expected length and depth of the crisis. Senator Hagel said
he thought recent USG actions -- both alone and in concert
with other governments and allies -- would instill a sense of
confidence and free up liquidity. But, he added, a
regulatory system for the 21st century was needed to address
fundamental problems, starting with the housing market and
the sub-prime mortgage problem. Senator Hagel said the ROK
would be very important in that regard going forward.


3. (SBU) President Lee described the U.S. response to the
financial crisis as "massive and swift." But worries in
Korea were somewhat higher than in China or Japan, or perhaps
in Europe, he said, because of Korea's financial crisis in
the '90s. Expressing confidence that the U.S. recovery would
be quicker than Europe's, Lee asked how long it would be
before actions being taken in the U.S. and elsewhere produced
results. The U.S. economy's size, flexibility, and
resilience notwithstanding, the Senator noted the crisis had
touched everything and would require time -) possibly one to
one and a half years -) to correct.


4. (SBU) President Lee linked the South Korean economy's
performance to the need to help North Korea; the ROK spends
billions helping the north, and it needs a strong economy.
When the U.S. removed the DPRK from its list of state
sponsors of terrorism, some said the U.S. had given in to
North Korean brinksmanship. But in dealing with a weak
partner like the north, the strong side (the U.S.) needs to
give two meters in order for the DPRK to give one meter.
Senator Hagel agreed.


5. (SBU) On the KORUS FTA, President Lee said he recognized
"you will be busy" during the U.S. election season, but that
he strongly believed the FTA was good for both countries,
both in terms of trade and the economy and the overall
relationship. President Lee said he would continue to work
for ratification in Korea. Senator Hagel, noting that he had
consistently supported the KORUS FTA, said the brief November
"lame duck" session in Congress was unlikely to take up the
FTA; while there was always the possibility of earlier
action, it was more likely to be considered in 2009. The
Senator said he was hopeful that out of the financial crisis
would come a stronger understanding of the importance of
strong FTAs and of trade relations overall. President Lee
reiterated his "deep confidence" that "we will continue to
have an in-depth discussion on the merits of the FTA."


6. (SBU) President Lee concluded by noting to Senator Hagel
the warm welcome Ambassador Stephens had received from the
Korean people and the high expectations Koreans had that she
would contribute to strengthening bilateral cooperation on
all fronts, including in addressing the problems of North
Korea.


7. (U) CODEL Hagel cleared this message.
STEPHENS