Stitch Korea seems to pedaling backwards down the slope...slowly, ever so slowly.
I post the whole of a Far Eastern Economic Review article becasue it is worth getting to the last paragraph.
My best to you,
Copyright Far Eastern Economic Review(C)
For private use only
Kim Adrift?
Koreans grow impatient with the pace of reforms
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By Charles S. Lee in Seoul
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May 21, 1998
I t was a familiar message. On May 10, appearing on a nationally televised "town-hall meeting" for the second time in four months, President Kim Dae Jung once again lectured the audience on the need for sacrifice and unity to overcome South Korea's economic crisis. "We have to accept pain this year," he said. "If we don't, we'll suffer for 10 years; but if we do, things will get better next year."
Most of Kim's countrymen applaud him for his frankness and for pushing sweeping economic reforms. But with his presidency almost three months old, there is growing impatience for action rather than words. Worse, some jittery foreign investors and Kim's political opponents say his administration has yet to put together an economic master plan with substance.
Indeed, confidence is draining from the financial markets. The won recently tumbled to around 1,700 to the dollar on offshore forward markets, much weaker than the spot rate of about 1,400. The local stockmarket has given up all the gains it had made since the beginning of the year. "People are disappointed," says Dan Harwood, Northeast-Asia director at ABN Amro Asia in Seoul. "Foreign investors are voting with their feet."
President Kim is struggling against daunting odds. Even as the economy slips deeper into recession, South Koreans of all stripes are digging in. The biggest headache comes from labour activists, who have rejected Kim's plea for dialogue and seem determined on an all-out confrontation with the authorities over lay-offs.
On May Day, the country was rattled by a demonstration of militant unionists and radical students that ended in violence. Riot police battled for hours in downtown Seoul with some 22,000 stone-throwing and pipe-wielding former pro-democracy comrades of Kim.
Taming the country's giant family-owned business groups, or chaebols, isn't proving any easier. Kim has been exerting pressure on the chaebols to restructure, not the least of it to show angry workers that the burden of reform will be shouldered equally. Finally fed up with foot-dragging, Kim ordered five of the largest groups--Hyundai, Samsung, Daewoo, LG and SK--to put forward convincing restructuring plans before his May 10 TV appearance. These were dutifully handed in, but failed to impress. Many analysts dismissed them as reworked versions of earlier plans that continued to lack details.
Meanwhile, Kim has been forced to walk a tightrope in the National Assembly to maintain the delicate alliance between his liberal National Congress for New Politics and a small conservative partner, the United Liberal Democrats, in the face of a massive opposition. The coalition is holding, but the opposition Grand National Party has ignored Kim's plea for cooperation in the first year of his administration. In response, the ruling coalition recently began to court fence-sitting GNP members in a bid to secure a parliamentary majority.
But as urgent reforms show little progress, a growing chorus of critics is also second-guessing the president's own resolve. The kindest fault Kim for failing to better coordinate his own fractious ministries; others accuse him of putting politics before economics.
"The government hasn't produced any results yet," says a South Korean economist at a Western investment firm. "The extent of restructuring needs in Korea is frighteningly large, but we're squandering quite a bit of time in executing them."
For instance, even as the administration preaches the gospel of restructuring to corporate executives, it's telling them to postpone or limit lay-offs. The reason: The government is clearly worried about a public backlash stemming from the country's exploding unemployment. The number of jobless at the end of March passed 1.4 million, or 6.5% of the workforce. During his TV appearance, Kim reiterated his earlier call for companies to first pursue wage cuts and job sharing before resorting to lay-offs.
In the same vein, the government is turning a blind eye on banks' continued practice of making "cooperative loans" to their ailing corporate clients. Most recently, creditor banks of the Dong Ah group, the country's 10th-largest chaebol, agreed on May 8 to extend to the company more emergency funding to the tune of 30 billion won ($21 million). It was the third bailout loan this year for the troubled construction giant, bringing the total so far to 390 billion won.
Dong Ah's creditors said the money amounted to a bridge loan to keep the company afloat while it finalized negotiations on a $500 million loan from Credit Suisse First Boston. But many analysts suspect the government encouraged the banks to intervene in order to prevent Dong Ah's collapse, which would have led to more unemployment.
From Kim's perspective, there may be a compelling reason to hold off on the most painful reforms: The June 4 provincial elections. With no other nationwide balloting scheduled until 2000, the administration may feel that it is crucial to pull off a decisive win now to secure a national mandate for reform. But if the public links the government's populist election strategy with business as usual or weak leadership, the strategy could backfire.
The opposition is doing its best to fan such doubts. At a recent parliamentary session, opposition members heaped abuse on the new cabinet, which they say is incompetent. Blasting the government probe to determine responsibility for last year's currency crisis, one opposition assemblyman derisively compared the Kim administration to a fire department more obsessed with finding the arsonist even before it has extinguished the flames.
For their part, Kim and his officials counter that critics are overlooking what has already been done. From the suspension of insolvent merchant banks to increasing support for the jobless, numerous reforms have been made, they say. The Kim administration has also laid the regulatory framework for reforming the chaebols, forcing them to reduce their debt, abandon cross-subsidiary loan guarantees and face stiffer foreign competition at home. Also, Kim unveiled a three-year economic-recovery plan during the televised meeting.
Drafted by the prestigious state-funded think-tank, the Korea Development Institute, the plan designates 1998 as a "year of restructuring," to be followed by "a year of IMF graduation" and the "year of a new take-off." KDI targets the quick restructuring of the nearly bankrupt financial sector as key to the Korean economy's structural adjustment, urging the government to mobilize 67 trillion won over the next five years to buy back bad loans, fund a deposit-insurance programme and recapitalize banks.
Yet Kim said nothing about how to raise such a huge sum. And perhaps it was only an inauspicious coincidence, but on the day of his TV appearance, Moody's lowered its ratings on 19 Korean commercial banks. "Significant doubts remain over the feasibility of restructuring the banking system," the rating agency said.
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