South Korea: An Unexpected Ally For BusinessRobert Neff and Laxmi Nakarmi
When Kim Young Sam took office as President last February, most Seoul insiders dismissed him as a lightweight with no government experience. Few thought he had the answers to South Korea's nagging problems: growing antagonism between government and business, labor unrest, and a flagging export economy.
But as Kim's Feb. 25 inaugural anniversary rolls around, even the most hardened observers give him good grades for what he has achieved in his first year. They are impressed by the firm hand he has shown in clamping down on authoritarian generals and political corruption. And they are pleased by his lightening up on the government's involvement in business and the financial markets.
Kim's strong showing has helped lift spirits. Looking ahead, Koreans see promising signs of stronger economic growth, improved competitiveness, and lasting labor-management peace. Tensions with North Korea--which has been balking at opening its nuclear program to inspection--haven't dampened business confidence. Company after company says it is planning to boost capital spending. The stock market has risen 45% over the last year. Even critics praise the President. "I think he's doing O.K.," says Hyundai Group Chairman Chung Se-Yung, whose brother, Chung Ju-Yung, the company's founder, lost to Kim in the presidential race and then was charged with violation of election laws and embezzlement. "The business climate is pretty good. Things have settled down."
That's because Kim started his major shakeup right after taking office. Within weeks, he purged Korea's military of the generals associated with previous regimes. Next, he revamped the repressive intelligence agency and installed a progressive intellectual as its head.
Kim also launched a jihad against corrupt officials and politicians. A key element in this campaign was his adoption of a long-discussed "real-name system" that restricts the use of phony or borrowed names on financial accounts. "Bribery has almost completely disappeared," marvels Lim Dong Seung, president of the Samsung Economic Research Institute.
While lashing out at corruption, Kim has also helped business by slashing interest rates to 12% from 17% and eliminating dozens of bothersome regulations. He has also courted the heads of Korea's business combines, or chaebol--inviting 30 of them to his Blue House residence for one of his famous buckwheat-noodle lunches. These executives had feared that the populist Kim would try to cut the companies down to size, but instead Kim seems set to lift credit restrictions and antimonopoly rules on their core businesses--in the name of improving competitiveness. "The chaebol and government aren't in conflict," says Koo Suk-Mo, vice-president of the Korea Economic Research Institute, an affiliate of the Federation of Korean Industries. "There are many more occasions than before for cooperation and talking." In fact, Kim is in danger of seeming too cozy with the chaebol. "The general feeling is that he's too pro-big business," says Yang Bo Young, a 29-year-old hotel barmaid who voted for Kim.
That is not the only criticism of Kim one hears. Several of his early appointees, not subjected to proper scrutiny, soon had to resign when improprieties surfaced. Despite his democratic rhetoric, the President hasn't always been above using old techniques of repression. Hyundai, for instance, has been denied access to government credits to punish Chung Ju-Yung. "Kim threatens opponents with investigations and treats them like traitors even when they are sincere," says the head of a private economic institute. "He's less democratic than his image."
EXPORT PUSH. Kim's future ratings largely depend on economic performance. Unless economic growth soars this year, unemployment will become unacceptably high and the fragile labor-management peace could be shattered, says Lee Hahn Koo, president of Daewoo Research Institute.
Fortunately, many economists see the economy growing by 6% to 7% this year, up from last year's 4.7%--a level that many Koreans consider disastrous. The steam is coming from capital investment and exports, which rose 7.6% last year and should grow 8% again this year. The strong yen and productivity improvement are making Korean ships, semiconductors, and autos attractive enough for the country to run its first current account surplus in several years.
Of course, Kim could easily run into roadblocks. He's not paying as close attention to North Korea as his predecessors--a dangerous tack because the North Koreans are considered capable of attacking Seoul, only 40 miles from the shared border. Kim also faces a battle with recalcitrant bureaucrats who will resist his efforts to further deregulate industry and the financial markets. And he's going to have to do something about inflation, which is approaching 6% because of strong growth. But for the first time, Koreans have a nonmilitary President with a clear agenda. With the economy improving, they are likely to give him the benefit of the doubt.