In November of 1997 when the former Korean government of President Kim Young-sam went hat-in-hand to the International Monetary Fund, the country’s usable foreign reserves had dropped to $6 billion from $21 billion a month earlier. By mid-December 1997 they were down to a mere $3.9 billion. The country for all intents and purposes was bankrupt.
In subsequent months, it was revealed that the average debt-to-equity ratio of Korean corporations was a stunning 400 percent and that the banking system sat on a pile of over 100 trillion won in non-performing loans. As a result, although the IMF had intervened with an emergency assistance program, the value of the currency dropped to 1,965 won per U.S. dollar in early 1998.
Those were not exactly auspicious signs under which to assume the presidency. It is the more remarkable what President Kim Dae-jung and his team have achieved in the year since he took office on Feruary 25, 1998.
The won has now been stable at around 1,200 to the dollar for more than sixmonths; foreign reserves are back up to $52 billion; and reform of both the financialsystem and corporate structure have made substantial progress. In aclear sign of renewed confidence, foreign direct investmentreached a record high of $8 billion in 1998 and is expected to increasefurther to $15 billion in 1999.
These results were not achieved by the labors of an economic technocrat. President Kim is nothing of the sort. Indeed, before he took office his detractors persisted in seeing him as a closet socialist or communist; even many of us who knew him better than that, and who admired him for his intelligence and learning, would have pointed to his quite apparent lack of economic sophistication as a troubling weakness.
For a head of state, though, sound instincts and principles can suffice in the absence of detailed knowledge of economics; a president, after all, can hire the technocrats and advisors. The point is to know in basic outline what he wants them to do and to be able to make those orders stick. Having endured decades in the wilderness of political opposition, including periods when he was jailed and exiled by the country’s former rulers, Kim as president has counted on his proven record and democratic convictions to set the tone for a new Korea and to gain the public’s support for his reform program.
In the international arena, he has acted as the nation’s number onediplomat. He has refused to let a series of military provocations deter him from a policy of active engagement with North Korea. As in the area ofdomestic reform, his style in international affairs is personal and direct.If South Korea is regaining the confidence of foreign investors and respect forits foreign policy efforts, this is in large measure a reflection and tothe credit of Kim’s personal efforts. The man is credible.
His principal remaining challenge at home—and one not easily dealt with orlikely resolved in the short run—is to decisively break the stranglehold ofthe large family-held chaebol (conglomerates) over the economy and to halt widespread collusion of government bureaucrats with those outfits.
Last week, in a meeting with business leaders, he called on them to
requesta personal meeting with him if they think the government and
its civilservants are
badgering them. But he immediately
followed up thatinvitation with a warning:
should no longer runtheir companies in an arbitrary way, and the
conglomerates must no longer rely onbehind-the-scenes bribery.
Most importantly, he said that the government
will not expect
anything fromKorean companies other than profit generation. Gone are
the days whenbusinesses are engrossed in expanding their market share
regardless ofprofits from the venture.
That market-share game, of course, had defined business/governmentcollusion in arranging political loans, causing gross misallocation of funds, forthe purpose of extending companies’ power and control without regard tosmaller shareholder interest or cost to the public and taxpayer. It is mostencouraging that President Kim in his reform program has accurately zeroed inon the issue that all but sank Korea in 1997.