Kim digs in to reform dinosaurs

By Yoke Har Lee

South Korean President Kim Dae-jung is staunch about his views on why the chaebols must reform: without that, Korean industries will remain largely uncompetitive.

"It is a fact that the chaebols [business conglomerates], despite their many contributions, have been a major stumbling block hindering advancement of the national economy. My determination to reform the chaebols is firm," he told the Business Herald.

Mr Kim arrives here today for the Apec leaders' summit, to be followed by a state visit to New Zealand, the first by a Korean leader in 31 years.

He is less concerned with how much control chaebols have over the economy than with the kind of influence they have on Korea.

His stance is firm: "Reform is not a matter of choice for them. It is imperative for them to comply with the agreements they made with the Government.

"Regulatory agencies will continue to encourage them and make sure that they implement their reform measures."

Government-driven reforms, he said, had also changed the behaviour of chaebols, which are now mindful that they cannot survive in the new competitive world without shedding their old practices of running huge fleets of businesses on borrowed funds.

"They are also aware that the Government is serious and consistent about chaebol reform."

Mr Kim is far more confident that chaebols can emerge with a clean bill of health than international financial analysts, who still doubt Korea's ability to tame and reshape them.

"In a very short time, the chaebols will be reborn as viable and wholesome entities," Mr Kim said.

He is determined to snuff out the collusive link between politics and business, especially in Government-directed banking practices. Unlike in the past, the Government will now not be able to appoint bank presidents arbitrarily or pressure them to make large loans to their favourite businesses or individuals.

"Irrational and anti-democratic Government intervention in bank affairs has ceased once and for all under my Administration because such behaviour is bound to make the financial institutions insolvent.

"Knowing the serious consequences of the collusion between politics and business, I made a point of banning the Government from interfering in the personnel and loan management of financial institutions.

"Since I was sworn in last year, I have personally refrained from any act that might give the impression the Government was meddling in the personnel management of banks," he added.

South Korea's economy collapsed under the weight of chaebols' combined debts, which some estimated at close to $US50 billion. Under a bail-out plan patched together by the International Monetary Fund, South Korea has embarked on a reform path.

A five-point plan was forged to, among other things, ensure that chaebols eliminate cross-debt guarantees among their subsidiaries, improve their capital structure, and strengthen their shareholders' accountability.

Mr Kim said that even the most sceptical international Korea watchers are beginning to make a positive reassessment and show trust in Korea's efforts.

Key changes being pushed through now, besides chaebol reform, include restructuring of the finance, business and public sectors and Korea's rigid labour market.

Mr Kim said the most important lesson Korea had learned since the Asian crisis was that: "Economic growth not matched by comparable growth in competitiveness is like a house built on sand."

He holds the view that competitive strength can be accomplished only through the simultaneous development of democracy and a market economy.

"The high growth that Korea achieved in the past was the result of Government-led intensive and rapid growth policies carried out at the cost of democracy ... That, in turn, distorted the workings of the market economy, brought on the loss of economic competitiveness and caused the foreign exchange crisis in 1997," he said.

The most painful aspect of the economic overhauling is the increase in Korea's unemployment rate, which reached a peak of 8.7 per cent but has eased to 6.2 per cent.

"If the current pace of recovery is maintained, we will be able to achieve virtually full employment in the year 2002."

Two industries Mr Kim is keen to see developed aggressively are venture capital and culture-tourism, for their effective creation of jobs.

His other approach to help Koreans meet the changes in the labour structure is to train job seekers on an on-going basis and expand lifelong education opportunities to all Koreans.