Now the Harder Part
By Shim Jae Hoon
Far East Economic Review
February 25, 1999After a year of unflinching economic reform, Kim Dae Jung is running up against political roadblocks. Progress could slow--but it shouldn't stop.
A native of Cholla province in the southwestern section of South Korea, President Kim Dae Jung never expected to win any popularity contests in the rival province of Kyongsang. But these days, he needs to think twice about even setting foot there.
The hostility was evident in Kumi, the heart of Kyongsang, on January 31. At the urging of the opposition Grand National Party, 15,000 people packed a football stadium chanting: "Down with the Kim Dae Jung regime that destroys the regional economy." When the rally ended, several hundred workers marched through the streets. Established in 1971 as the centre of South Korea's electronics industry, Kumi once thrived. Today, it is mired deep in recession; one in seven workers is unemployed. The marchers' war cry: "We oppose the 'Big Deal' with death."
The so-called Big Deal is a corporate asset-swapping plan that's central to Kim's efforts to restructure South Korea's giant chaebols, or industrial groups; and the resistance it's meeting in industrial hubs such as Kumi signals trouble ahead.
After grudgingly playing along for a year with Kim's hard-driving economic-reform programme, the opposition and labour unions are starting to act up, drawing on popular discontent over unemployment and ill-will rooted in regionalism that has long plagued Korean politics.
All this means that the second year of Kim's presidency, which starts on February 24, is likely to be hobbled by a resurgence of labour unrest and ugly political battles. The turbulence, however, should not seriously threaten the incipient recovery that is starting to draw investors back to South Korea. Kim's reform juggernaut, political analysts and others say, simply has too much momentum to be halted by the unions and opposition.
With the debt crisis under control and overseas investors returning, Kim has macroeconomic figures and most public opinion on his side. Even the chaebols seem to have accepted restructuring as an inevitability. "The political confrontation may slow the pace of reform, but not sabotage the reform itself," says Bae Ie Dong, an executive in charge of international relations at Federation of Korean Industries, the big-business lobbying organization.
Kim's strength is in the numbers. The usable foreign reserves at the central Bank of Korea run at a healthy level of $50 billion--more than enough to cover three months' worth of imports. Interest rates dropped to 10% in January compared with 30% a year earlier. And the local stockmarket index has bounced back to about 550 points from the anaemic level of 300 during its 1998 lows.
Still, rumblings from the labour front are troubling, especially as Kim's programme moves into high gear. South Korean labour unions are renowned for their militancy. During the 1980s, they commonly resorted to firebombs and self-immolation to fight for higher wages and political democracy. As he seeks to avoid a repeat of history while pushing forward his reform agenda, Kim walks a fine line.
Today's official unemployment figure of 1.8 million, or 9% of the workforce, is expected to grow to more than 2 million in March. That's when a fresh batch of university graduates comes on the labour market. Meanwhile, positions at the country's top five chaebols, which are at the centre of Kim's drive, remain under threat.
"It's going to be a tough year, for President Kim as well as for workers," says Park Jae Chang, political science professor at Sookmyung Women's University in Seoul. "Kim's dilemma is that he can't afford to relax on reform even if political deadlocks get worse." That's because counterbalancing the pressure he's receiving from labour unions and the opposition to back down on reform is an equally strong pressure from international investors to remain steadfast.
Kim's position has become increasingly difficult with the threat that the Korean Confederation of Trade Unions, the more hardline of two nationwide union umbrella organizations, will pull out of the emergency Tripartite Commission on Labour, Business and Government. The consultative agency was set up last year to support the president's economic restructuring drive by legalizing lay-offs.
Half-a-million members strong, KCTU's withdrawal could trigger a new round of labour strife that would open the way for the second, centrist organization, the Federation of Korean Trade Unions, to follow suit. Like the KCTU, FKTU officials complain mass lay-offs are victimizing workers while President Kim wastes time on political wranglings. They are especially critical that the National Assembly, the country's parliament, has spent time on partisan issues like holding hearings to determine the cause of economic crisis.
Located in southeastern Korea, Kyongsang is among the country's most affluent and politically conservative provinces. Four of South Korea's last six presidents--all members of the Grand National Party--came from the province and their favouritism transformed the agricultural backwater into a chaebol stronghold. President Kim's own home, Cholla, is agricultural-based, relatively poor, and liberal leaning. Kim himself has spent most of his life fighting against Kyongsang-backed governments.
Playing up this tension, the GNP complains that Kim is discriminating against chaebol owners who are from Kyongsang. Amid growing anti-government sentiment in the region, Kim has responded swiftly to defuse tension. In early February he recruited two politicians from the region to fill ministerial-level posts in his government. The message to Kyongsang? Kim will not discriminate against the region.
But, as evidence of the president's discriminatory attitude, the GNP points to Kim's orders that Samsung Group, the country's second biggest conglomerate, hand over its money-losing car-making arm to Daewoo in exchange for Daewoo's electronics business. Both companies are based in Kyongsang.
The swap is expected to result in at least 8,000 lay-offs between the two companies. Not surprisingly, unions for both groups are resisting Kim's plans. They want hefty compensation for lay-offs--in Samsung's case, five years' wages--and new job guarantees.
"Lay-offs don't equal restructuring," says Yoon Young Mo, international secretary of the KCTU. He argues that, in general, the government must be more flexible and that KCTU will oppose any chaebol lay-offs under the circumstances.
To the ruling coalition group headed by Kim's National Congress for New Politics party, backtracking on lay-offs is an impossible idea: Lay-offs are seen as a crucial part of shifting corporate Korea's emphasis from market share to profits and efficiency. But in an effort to stave off trouble with unions, the government has shown some flexibility.
For example, Kim has asked Daewoo to retain workers to continue to produce Samsung's SM5 models. But what's good for President Kim may not be good for Daewoo Motor. The domestic car market, saturated with excess capacity, has had a hard time sustaining yet another car model from a failing company. "It's ridiculous for us to keep on producing cars that would only add to our losses," complained an unidentified Daewoo executive, suggesting the request may be turned down.
Kim has also prevailed on two other Kyongsang-based conglomerates. LG Group is set to hand over its semiconductor unit to Hyundai Group, South Korea's biggest car maker. Since the swap will involve at least 1,500 lay-offs, this, too, has raised union ire and become a touchstone for the opposition.
In addition to skillfully exploiting regional splittism, the GNP also takes issue with the way Kim is pushing the Big Deal. "Economic reform is necessary, but not under government intervention," asserts GNP president Lee Hoi Chang, a conservative former jurist who lost to Kim in the 1997 election. He says the restructuring drive should be left to market principles and banks.
Indeed, the GNP insists Kim's approval rating is dropping, although it cites no evidence. Meanwhile, it claims Lee's rating has inched up from the single digits to 20% during the last few months, presumably boosted by recent street campaigns.
Irrespective of risk to his popularity, though, Kim must push on with his restructuring drive, says Yang Sung Chul, a government legislator. No political leader can stay popular while carrying out strong economic reforms, he says, harkening back to Britain during the 1980s: "Margaret Thatcher never had a moment of peace when she was battling the coal miners. That's the case now with President Kim."
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