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Golf and karaoke may help heal weak S.Korea economy

By Judy Lee

SEOUL, Feb 19 (Reuters) - A dinner table remark by South Korea's new finance minister, hinting at a need to relax rules on corporate expenses, has excited not only karaoke bar owners, but also economists hoping it heralds a boost for frail local demand.

Lee Hun-jai, who spearheaded a sweeping overhaul of South Korea's economy after the 1997-1998 Asian financial crisis, criticised at his inauguration dinner last week the timing of rules aimed at clamping down on business expenses.

The new rules, introduced on January 1, require firms to name participants at drinks, golf rounds or any kind of entertainment to the tax office, if expenses top 500,000 won ($430).

"I understand the real name system was launched with rightful intention but the timing was not appropriate," the bespectacled Lee was quoted as saying at the dinner to mark his second stint in office. He later confirmed to Reuters he made the remark.

The measures, intended to curb tax evasion on the huge sums spent on business entertaining in South Korea, come at a time the economy faces weak local demand and is barely out of recession.

Lee's comment has added to a growing consensus he is serious about trying to reinvigorate the economy.

"The new minister will adopt a more aggressive easing policy, given his latest comments on interest rates and money supply," said Daniel Yoo, a Citigroup analyst. "Lee's appointment will help the government policy gain in coherence and leadership, which his predecessor failed to show."

Lee replaced Kim Jin-pyo who is running for parliament.

PRICEY SCOTCH SALES FALL

The stock market is also betting on a possible boom.

Bank stocks, which had been hit hard by surging credit card defaults, rallied this week, as investors bet they would be the first beneficiaries of solid economic growth.

"Market participants are hopeful of the Lee Hun-jai effect," said Huh Sun-joo, a fund manager at Lee & Kim Investment Group. "I'm looking at financials, consumers and automakers again."

The bank sub-index is up seven percent since Lee took office on February 10, while the broader KOSPI rose 0.6 percent.

For the owners of upmarket bars catering to business customers, Lee's comment offered a ray of hope.

"The ridiculous real name system must be amended. Most corporate customers stopped coming because they feel uncomfortable reporting every single guest they entertain to authorities," said Jung Da-bin, who runs Red-M, a karaoke bar in the posh Kangnam area of Seoul.

"If business goes like this for several more months, I'll have to close the bar", added Jung, whose bar sells Chivas Regal Scotch whisky for 250,000 won ($216) a bottle.

Latest data from credit card companies, a sector already hit hard by rising individual defaults following a credit boom of the past years, appeared to back up Jung's complaints.

Samsung Card Co, a unit of the Samsung Group, said settlements via corporate accounts fell 24 percent in January from a year ago.

Shinhan Card also said settlements at golf courses and karaoke bars, dubbed here "room salons", halved in January.

($1=1158.0 Won)