Can Kim Get Koreans To Swallow This Medicine?

He must talk the chaebol into restructuring--and labor into accepting massive layoffs

Kim Dae Jung has always considered himself a man of destiny. But even he could not have imagined the magnitude of the job that awaits when he takes office as South Korea's next President on Feb. 25. No sooner had the 72-year-old pro-democracy activist achieved one monumental accomplishment--wresting power on Dec. 18 from a clique of politicians and big business that has led the Asian dynamo for three decades--than Kim was thrust into an even more gargantuan role: reinventing Korea Inc.

Thus far, Kim appears ready to implement the wrenching overhaul required to save Korea from a spectacular financial collapse. As bankers and government leaders huddle in crisis meetings from New York to Frankfurt to Tokyo, the President-elect has recanted his campaign pledge to renegotiate terms of a $57 billion International Monetary Fund bailout. Instead, Kim is promising measures considerably bolder than his predecessors ever dared to contemplate.

Despite his past as a longtime champion of the working man, Kim has indicated he will permit failures of Korean financial institutions and leading conglomerates, or chaebol, which will lead to massive layoffs in a country that lacks a social safety net. He has publicly backed sweeping reforms unveiled by Seoul on Christmas Eve to remove almost all barriers to foreign investment in its financial markets in exchange for a $10 billion advance payment from the IMF. That, in turn, is prompting leading Japanese, European, and U.S. commercial and investment banks to agree to roll over billions in credits due in the coming months.

Now comes the job of selling the consequences to the Korean public. Kim is using his long-standing reputation as a populist to convince labor unions that industrial restructuring and layoffs are inevitable. Perhaps more important, Kim has declared finished the economic model that has propelled the country to date. By throwing open the doors to foreign investment--allowing even 100% foreign ownership of listed companies by the end of 1998--Kim says Korea will abandon its old obsession with exports and self-reliance. "Our response to the crisis must be accurate, and no single mistake must be allowed," he says. Kim has formed a 12-person panel to devise a new economic structure and has enlisted the revered founder of Pohang Iron & Steel Co., Park Tae Joon, as his top adviser.

Still, the road to recovery is riddled with obstacles. For Kim's strategy to succeed, the chaebol will have to follow through by selling off holdings and loosening their stranglehold on the Korean economy. "Unless companies quickly downsize and improve the financial structure of their core businesses," says Seoul National University economist Cho Dong Sung, "creditors will not roll over loans coming due."

CHAEBOL SHAKEOUT? Fortunately, many Korean corporations have vast assets (unlike the Latin debt-crisis situation of the 1980s), and there are signs that a fire sale has begun. Wal-Mart Stores Inc. has negotiated to buy retail outlets from troubled New Core Group; Coca-Cola Co. paid $432 million to Doosan Group for its bottling operations; and Procter & Gamble Co. bought a papermaking business from Ssangyong Group. Banks, pharmaceutical plants, and even Korea's prized auto makers all could be takeover targets.

Forcing the chaebol to pay for their mistakes also is necessary if Kim is to keep Korea's unions at bay. Blue-collar workers have long been a Kim power base. He has promised to set up an agency for unemployment compensation and job retraining and persuaded the Federation of Korean Trade Unions, a moderate umbrella group, to join a forum involving labor, business, and government to develop a new policy for industrial relations. But the more militant Korean Confederation of Trade Unions, which has more than 500,000 members, is demanding that a shakeout of the chaebol must take place before it cooperates in layoffs. "We cannot accept moves to make workers the scapegoats while delaying reforms in chaebol," warns Yoon Young Mo, the confederation's international secretary.

Having spent his career at the fringes of the Korean Establishment, Kim Dae Jung's education is likely to be a lengthy one. But that same background could mean that Kim is exactly the kind of leader needed to break down an outdated system. If he learns his lessons well, Kim could go down as a truly rare Asian statesman: one who has modernized both the political and economic systems of his country.

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