Page 2 of 2 In Korea pessimism trumps
reality By Donald Kirk
negatively whenever shrewd foreign
investors manage to get out with huge profits.
Indeed, one of the major achievements of
the chaebol since the economic crisis has
been to bring debt-equity ratios down from an
enormous average of 425% to slightly above 100% -
in other words, from four times the average value
of the borrower to almost the same value. The need
for such discipline was one of the most
important requirements
imposed by the International Monetary Fund, which
put together an aid package of $58 billion in
loans to keep the country from plunging into
bankruptcy.
The chaebol, though,
show clear signs of reverting to old habits. A
number of top chaebol executives have been
accused of maintaining funds for bribes, for
manipulating stock for family members and for
ensuring their own grip. Among the most visible is
Chung Mong-koo, the chairman of the Hyundai
Automotive Group, who remains on trial after
having been jailed for 62 days while prosecutors
investigated him for, among other things, trying
to make certain that his only son, the head of
subsidiary Kia Motors, succeeded him.
At
the same time, the chaebol are trying to
get the government to ease the rules limiting the
rights of companies within a group to own shares
in other companies in the same group. Analysts
point out the obvious conflict between the
interests of entrenched shareholder families and
outside stockholders.
"There is still a
potential risk of future instability in the
financial system," said Takahira Ogawa, director
of sovereign ratings for Standard & Poor, who
cited "regulatory forbearance and the government's
tendency of bailing out" institutions in trouble.
Since last year, he believes, "Korea's fiscal
strength has started to erode."
Understandably, most South Koreans,
outside the tight-knit world of the chaebol
families and their managers, take a jaded view of
all the financial byplay even as the stock market
holds steady above 1,400 after having descended to
the 300s after the financial crisis and then
wallowing for ages around 800. Average South
Korean wage-earners say they don't invest much in
the market and complain about rising prices led by
a vastly overheated property market.
Consumer debt now totals $370 billion, an
astounding 42% of GDP, thanks in part to the
government's easing up on consumer loans, once
quite difficult to get. Household loans rose last
month by more than $6 billion and total mortgage
loans soared above $250 billion as the cost of
buying a home rose by 3.1%, the biggest monthly
increase since April 1990.
While the BOK
considers whether to raise the 4.5% overnight call
rate to slow down consumer borrowing, experts
predict that GDP per capita will rise above
$20,000 next year. Granted that some of the
seeming increase in dollar terms reflects the
declining value of the greenback, the fact is the
GDP capita was just $16,291 a year ago and was as
low as $7,355 in the depths of the 1997-98
economic crisis.
On a per capita basis,
South Korea lags behind the biggest industrial
powers. The US leads the world with a per capita
GDP of $40,000, while the GDPs per capita of
Japan, Germany, France and the United Kingdom all
exceed $30,000.
Eight percent of South
Korean households, however, rake in well above
$6,000 a month, and a recent United Nations report
showed that 2% of the world's richest people live
in South Korea even though it has only 0.77% of
the world's population.
So why do most of
the South Koreans whom you're likely to meet
personally seem so fearful of the country's
economic future? The answer in part reflects the
competitive envy that Koreans so often harbor
toward one another, said an executive at KOTRA,
the Korea Trade Investment Promotion Agency.
Roh's approval rating has sunk to 5.7%,
low even by the standards of Korean presidents
entering their last year in office. Roh's
predecessor, Kim Dae-jung, suffered from an
approval rating of just 16% in the year before
Roh's election in December 2002, five years after
the economic crisis.
Critics charge that
much of what Roh does is drive by ideologues on
his staff who would, if given the chance, harness
the chaebol while encouraging small
enterprise. Roh might appear to espouse the cause
of victims of capitalist exploitation, but a
majority of South Koreans have come to ignore him
while calling for conservative reform.
The
most appealing presidential candidate so far is
Lee Myung-bak, who led all potential candidates,
with 31.1% professing to support him. His nearest
rival for the presidential nomination of the Grand
National Party is Park Geun-hye, daughter of the
late president Park Chung-hee, assassinated by his
intelligence chief in 1979, with a rating of
22.9%.
Lee's popularity reflects his
success in his recent term as mayor of Seoul in
revitalizing the city's center, including the
opening up of an urban stream that had been
covered by broad streets in the period of
expansion after the Korean War. Lee also brings
years of business acumen as top executive of
Hyundai Engineering and Construction, the central
company of the Hyundai group before its takeover
by banks in the aftermath of the economic crisis.
Despite radical activism, conservative
voices and ideas dominate when it comes to
resolving problems. "In Korea, pessimistic views
have begun to circulate that the Korean economy
may fall into a long recession as witnessed in
Japan," said S&P's Ogawa.
"The risk of
such a scenario occurring, however, is relatively
limited," in Ogawa's view. "But given strong
international competition, further reform to
create greater efficiency and profitability in the
private sector is the key for increased growth
potential of the Korean economy."
Donald Kirk, who covered the
1997-98 economic crisis in South Korea for the
International Herald Tribune, is the author of
Korean Crisis: Unraveling of the Miracle in the
IMF Era and Korean Dynasty: Hyundai and
Chung Ju Yung.
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