Is Korea Blowing Its Big Chance?

The atmosphere seemed right. Dining on his favorite buckwheat noodles, South Korean President Kim Young-Sam shared jokes with 26 of the country's most prominent tycoons during a dinner at the Blue House on July 2. As he schmoozed with the business leaders, Kim appeared to be making progress in persuading them to change the way they do business--and thereby help him revitalize the Korean economy.

The good feeling from the dinner, however, proved illusory. A week later, the Federation of Korean Industries held a high-level meeting to follow up on Kim's message. Only three of Kim's guests from the dinner showed. "This was a clear signal to the President how unhappy we are with his policies," says one participant in the follow-up meeting.

Just six months after taking office with a vow to revitalize the economy, Kim is up against widespread opposition. The leaders of the country's chaebol, the conglomerates that dominate the economy, are not supporting him. A recalcitrant legislature and frightened bureaucracy are stonewalling his efforts to promote political reform. And resurgent labor unions are increasing demands for higher wages. Kim, who hoped to have begun turning the country around by now, must confront the likelihood that Korea can muster only meager economic growth this year. For instance, Korea's current-accounts deficit is $1.6 billion for the year thus far.

Kim, the first civilian President in 30 years, rode into office in February as a populist. During the campaign, the former dissident enjoyed the support of many workers convinced that he would reverse decade-old policies of favoring the chaebol. Kim has said that he might allow unions to form political parties, and his Labor Minister proposed lifting the bans on payment of wages during strikes and union participation in management.

That message egged on militant labor leaders. Calling for wage increases of as high as 18%, 30,000 workers at a Hyundai Motor Co. plant in Ulsan walked out on July 15. Management prevailed there, as the unions accepted a 4.7% increase and the continuation of the 44-hour workweek. Kim's government has withdrawn some of its labor proposals amid a storm of criticism from chaebol leaders.

Trouble is also brewing in the government, where Kim has hit opposition from members of his own Democratic Liberal Party. Many are former supporters of old authoritarian governments and are unwilling to back Kim's efforts to eliminate many of the vestiges of the military era. Kim has been able to submit only one bill in the National Assembly. Members have spent most of the session quarreling over corruption investigations.

In March, Kim bypassed the legislature with a 100-day program to kick-start the economy by eliminating about 700 administrative regulations. But gross national product grew at an annual rate of 4.2% in the second quarter, far less than the 6% forecast, because of a decline in chaebol investment. Growth is not going to pick up "unless there is a clear change in the government's priorities," says Lee Han-Koo, president of Daewoo Research Institute. The chaebol want Kim to call off corruption investigations into their involvement with previous military-backed governments. Meanwhile, with the chaos at home, chaebol executives say they are unable to take full advantage of the opportunities presented by the high Japanese yen and new markets in China and Vietnam.

MOVING AHEAD. The chaebol are taking halfhearted measures to satisfy critics upset by the conglomerates' diversification into so many fields. Nearly two dozen groups have announced plans to sell off companies. But most are minor eperations, and a Kim aide dismisses such moves as superficial. "We want to see fundamental and substantive changes," the aide says.

Despite business opposition, Kim pledges to plow ahead with his reforms. Auditors are studying intragroup transactions among chaebol affiliates for violations of fair-trade rules. That could strike at the heart of how the industrial groups are organized. Kim also intends to open manufacturing and service sectors to foreign investment by 1996.

To succeed, Kim needs to balance the demands of chaebol and labor. He also will have to find a way to manage his anticorruption campaign while allowing the bureaucracy and Korea's business establishment to begin functioning again. If Kim doesn't come up with the right recipe, he may miss his opportunity to lead a more democratic Korea into the ranks of advanced industrial nations.

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