South Korea's Economy Has Put Crisis Behind It
San Jose Mercury News
December 1, 1999

SEOUL, South Korea (AP) -- Lee Bong-jae's heavily indebted securities firm failed nearly two years ago, just after the International Monetary Fund took control of South Korea's slumping economy.

Lee still doesn't have a job, but he's not complaining. As a full-time stock market investor, he says he's earning far more money now.

``It's a sea change for me. I must thank the IMF for all this,'' Lee said with a big smile, watching a wide electronic board blinking the day's prices at an investment company's lounge.

Two years after South Korea went to the IMF with hat in hand for a record $58 billion financial bailout, the mood has changed dramatically. So much so that President Kim Dae-jung declared Nov. 19 that South Korea had fully overcome the Asian currency crisis.

Many indicators back Kim's claim:

 The economy is expected to grow 9 percent this year, compared with a 5.8 percent contraction in 1998.

•  Inflation is expected to be less than 2 percent for the year.

•  Unemployment is down to 4.8 percent from the peak of 8.6 percent reached after more than 22,000 companies failed in 1998 alone and put hundreds of thousands of people out of work.

•  Foreign exchange holdings, once as low as $3.8 billion, now stand at $68 billion.

•  The U.S. investment-rating company Standard and Poor's has upgraded the South Korean government's credit rating by five steps.

  But some economists and analysts warn against complacency and worry the recent rapid growth could spur a surge in inflation.

  ``The outlook of our economy is still unclear,'' said Lee Pil-sang, an economics professor at Korea University in Seoul. ``If foreign factors such as the Japanese yen's value and international oil prices are favorable to us, the economy will continue to grow. But if not, who can say what would happen?''

  He also worries there hasn't been fast enough progress in reforming South Korea's bloated conglomerates, which still control many unprofitable businesses and engage in inefficient bookkeeping.

  Under prodding from the IMF, the government has banned cross-funding and cross-repayment guarantees among the conglomerates' subsidiaries, a move experts say will lead to dismantling the closely knit business empires.

  All major conglomerates have promised to restructure by year's end.

  The family-controlled conglomerates, known as chaebol, are widely blamed for South Korea's economic crisis. About a dozen collapsed under heavy debts in 1997, saddling banks with billions of dollars in bad loans and fueling the crisis.

  South Koreans' pride was badly hurt when their once-mighty economy, built from the ashes of the 1950-53 Korean War, crumbled after foreign investors sold their stocks and pulled out of the country in 1997.

  Now, foreign money is flowing back. A considerable portion has gone into the Korean stock market, pushing up its index from the 280-point level in January 1998 to near 1,000 today.

  The recovery may be partly a reflection of South Koreans' determination to overcome the crisis. At the height of the financial turmoil, millions of Koreans sold or donated 222 tons of rings, necklaces and other gold trinkets worth $2.2 billion to aid the bailout.

  ``I sold two gold rings and one necklace,'' said Lee Suk-ja, a housewife. ``It was a small amount, but I take a great pride in taking part in helping the country in time of need.''