From: rich%pencil@UKCC.uky.edu (Rich Winkel)
Subject: Korean Workers To Fight Austerity
/** labr.global: 273.0 **/
** Topic: Korean Workers To Fight Austerity **
** Written 12:30 AM Nov 26, 1997 by labornews in cdp:labr.global **
IMF Bailout Pushes South Korea’s Stock Market to 10-Year Low
By Kevin Sullivan, The Washington Post, 26 November 1997
SEOUL, Nov. 24 - Panicky traders sent the South Korean stock market tumbling to a 10-year low on the first full trading day since the government announced it will seek an emergency bailout from the International Monetary Fund.
Few analysts directly linked the turmoil here to the failure today of Japan's huge Yamaichi Securities firm. However, the accumulation of bad economic news provided further evidence that a tide of financial woes that swamped Thailand, Malaysia and Indonesia earlier this fall has now overflowed into Northeast Asia.
As the reality of Friday's IMF bailout request began sinking in, domestic investors sold off shares at a furious pace and the Seoul market fell 7.2 percent to close at 450.64, its lowest level since July 1987. Bond markets also declined, South Korea's currency, the won, resumed its slide, and interest rates jumped to a five-year high. "Ugly is the proper term for it," said Mark Barclay, an analyst with Samsung Securities Co. in Seoul. "It's grim, but there's going to be a lot of hardships in this economy for the next while."
South Korea's economy, which grew from the ashes of the 1950-53 Korean War to become the world's 11th most powerful producer, seems headed for a long period of pain. Government officials, who had refused to acknowledge the depth of the problems until hours before they asked for the bailout, now admit that the national economy is out of control and in need of Draconian restructuring.
Those reforms will begin with a series of strict new fiscal controls demanded by the IMF as a condition of the bailout. The IMF, whose officials began arriving in Seoul Sunday, is expected to seek lower targets for overall economic growth, controls on inflation, liquidation of bloated financial institutions and changes in labor laws.
Analysts here say those measures, while needed, are almost certain to cause tax increases and layoffs in a country where lifetime employment had been virtually guaranteed. Unemployment, now at just over 2 percent, may skyrocket. South Korea's strong labor unions are expected to fight the moves and massive strikes are likely, causing social unrest in a proud nation that thought it had left its worst economic days behind.
"Everyone is going to be affected by this," Barclay said, noting that the new fiscal controls probably will lead to higher interest rates and more corporate collapses.
South Korea's industrial conglomerates vastly overextended themselves in the last couple of decades, when favored industries were given nearly unlimited access to capital by the government and the banks it controlled. Analysts now say the average South Korean company has debts that total three times its assets, and many are in far worse shape.
If interest rates continue rising, it will be even harder for those companies to make payments on their debt. South Korea, already stung by a record rate of corporate collapses, may see far more companies go under, adding to the banks' bad debt -- already estimated at $26 billion -- and raising the unemployment rate.
South Korea's won closed at 1,085 to the U.S. dollar today -- down almost 3 percent from Friday and 20 percent since the beginning of the year. The weak won has caused havoc for consumers, whose paychecks no longer go as far, and for corporations competing in the global marketplace.
Political concerns are also weighing heavily on investors. South Korea will elect a new president on Dec. 18; President Kim Young Sam, prohibited by law from seeking a second term, will be a lame duck until his successor is sworn in in February. In the meantime, analysts here say Kim has shown remarkably little enthusiasm for tackling the economic problems.
"This chaotic situation will continue because we don't have any responsible government for three more months," said a South Korean economic analyst who asked not to be identified. "Investors are beginning to realize how painful the IMF rescue will be, and Kim Young Sam is acting like a lame duck."
Kim made a somber address to the nation Saturday, urging South Koreans to prepare for painful belt-tightening. He has taken his appeals for help to the Asia-Pacific Economic Cooperation forum in Vancouver. Japan's Kyodo news agency reported tonight, meanwhile, that Secretary of State Madeleine K. Albright told South Korean Foreign Minister Yoo Chong Ha that she is optimistic about South Korea's future. Albright noted the nation's "impressive record" in recent decades, the agency reported.