Top officials from Kim Dae Jung's Millennium Democratic Party celebrated the South Korean President's winning of the Nobel Peace Prize on Oct. 13 by popping bottles of beer at an impromptu celebration at party headquarters. But one spoilsport wistfully remarked it would be nice if the stock markets joined in. Indeed, the Korean market is down more than 50% since its high earlier this year. What does the market know that the Nobel committee doesn't?
For decades, Kim has been doggedly dedicated to bringing peace and justice to the Korean people. Fueled by his Catholic faith, he passionately believes that he was chosen for the task. The Nobel caps an extraordinary political career marked by assassination attempts, a death sentence, imprisonment, and, finally, Kim's triumphant election as President in December, 1997.
STYMIED. But in the rough and tumble of Korean politics, what's a Nobel really worth? Reformers are hoping the prize will give Kim the clout to address Korea's still numerous economic woes, from a corporate scene dominated by debt-laden chaebol, to a still-fragile banking system, to a stock market in free fall.
Although Kim has ideas on how to fix this mess, his execution has been patchy. The ferocity of entrenched business interests, coupled with his reluctance to make unpopular moves, have stymied most efforts at reform. Kim's reformist party's uneasy coalition with the conservative United Liberal Democrats gives it a shaky majority in the National Assembly. But so far, Kim's party has held back on the really tough measures. Kim has been particularly leery of moves that could raise the unemployment rate, such as letting companies go bankrupt, for fear that they would result in the party's electoral defeat.
Yet in a country where the Nobel prize carries enormous prestige, winning strengthens Kim's hand with the public at large. It gives him a mandate to appeal directly to the people to tough out any hardships they might need to face as the country continues on its path to reform. "Having achieved his political ambition by winning the Nobel Peace Prize, he can now be freed from following populist policies," says Korea University finance professor Park Kyung Suh.
Kim, 76, is constitutionally prohibited from running in the next election in December, 2002. So from the second half of next year, Korean politicians will be preoccupied with the fight to succeed him. That means he has at most one year, and probably less, of real political might and the chance to use his new prestige to win ground. Plus, with the economy growing 9% this year, this is the time to act.
The longer Kim waits to write down bad debts and recapitalize the banks, the higher the ultimate tab. Despite having spent $98 billion bailing out the financial system, there's still about $100 billion in bad debts on the books. Seoul also needs to rev up the pace of corporate restructuring. Time and again, Kim has sacrificed long-term reform for short-term gains. Daewoo Motor still isn't sold, following the withdrawal of Ford Motor Co.'s bid in September, and the value of the Korean auto maker continues to decline. A deal to sell bankrupt Hanbo Steel also just collapsed, partly because of bureaucratic bungling. Only strong political leadership can fix these problems--especially in Korea, where the President enjoys wide-ranging powers.
Kim and his fellow politicians should bite the bullet and let hundreds of insolvent companies go bankrupt and out of existence: A recent survey of 4,800 large companies by the Korea Development Institute, a government think tank, found that 362 had not earned money to cover their debt costs for three years in a row.
Kim has now pledged to speed up reforms and build a first-class economy by boosting the information and biotech industries. "I'll lay the foundation needed for a strong economy before handing over the government to my successor," he says. And government officials have promised, yet again, that they will pull the plug on some companies soon. Since they are unlikely to have the nerve to act without Kim's backing, this will be a chance for Kim to show his mettle. As a Nobel laureate, he can use his new authority to explain these difficult moves. After all, putting Korea's economy together again would be a monumental achievement, too.