South Korea: Can Reform Survive The Next Election?

He is known as Asia's star reformer and is credited by Westerners with bringing South Korea back from the brink. But now, President Kim Dae Jung is facing a no-holds-barred political battle at home that will largely determine how much he'll be able to accomplish in his remaining three years in office.

On Apr. 13, Korean voters will elect a new 273-member National Assembly. The election is essentially a referendum on Kim's reforms, which face stiff opposition from the chaebol, unions, and conservative technocrats in his own government. So no one expects Kim's Millennium Democratic Party to win an outright majority. And while Korean voters are notoriously unpredictable, early surveys indicate Kim's followers may win as few as 110 seats--which would force him to scramble to form a coalition government.

That would require painful compromises and almost certainly a slowing of reform. Kim might have no choice but to team up again with conservatives such as Kim Jong Pil and his United Liberal Democrats. A founder of the Korean Central Intelligence Agency that attempted to assassinate Kim in 1973, Kim Jong Pil and his followers helped create the Korea Inc. that thrived on kickbacks from the chaebol.

BRIBERY? Even so, Kim Dae Jung turned to Kim Jong Pil for support in 1997 when he had fewer than a third of the seats in parliament. Their coalition split recently after the two parties wrangled bitterly over proposed political reforms. Kim Dae Jung's alternative partner is an even worse match: a splinter group of the main opposition Grand National Party created by party elders whom civic groups charge with taking bribes from the chaebol. Some deny it. Others say they accepted political contributions--not bribes.

Either of these potential partners could demand big concessions from Kim Dae Jung. He may have to delay plans to privatize 10 state-run companies in industries ranging from telecom to tobacco. And he may have to give chaebol founding families more time to streamline their fiefdoms. "The nation is likely to be swept up by a political game," warns Gong Sung Jin, head of the Hanbek Foundation, a research center in Seoul. Adds Sonn Ho Chul, a political scientist at Sogang University: "Conditions for reform will get worse."

The political face-off certainly comes at a crucial time. Although gross domestic product grew 10.2% last year, Kim has far to go to put the economy in order. Korea's financial system is buried in some $100 billion in bad debts. And Kim must yet break up the chaebol to make their business units run independently. "If reform halts now, founding families will continue to steal money from minority shareholders through opaque deals involving various units," warns Jang Ha Sung, a Korea University finance professor who heads a shareholder activist group.

If Kim can't push through these reforms, Korea could miss its chance to create a truly open, competitive economy. It might even be in danger of backsliding into a system in which the chaebol and government collude to keep the market from working. The weak financial system that has been bailing out companies could falter, pushing Korea back into crisis. "It's like surgeons ending their work in the middle of a serious operation," says Lee Chang Hee, senior analyst at Daiwa Securities Co.

Kim's best chance to keep reform moving could be to respond to disillusioned voters. From shareholder activists to environmentalists, civic groups want Kim to stamp out corruption and clean up the public sector. Only then, they believe, can Korea reembark on the radical overhaul needed to become a global player. Asia's star reformer faces a tough balancing act for the remainder of his term.

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