S. Korean President-Elect Vows Reform

SEOUL — Even as South Korea’s president-elect today declared the launch of a “new age” of economic reform for the debt-racked nation, its financial markets suggested investor confidence remains in short supply.

The benchmark Kospi stock index was off 3.5% to 403.78 in afternoon trading today, as the country’s currency, the won, sank to 1,615 to the dollar from Wednesday’s 1,481. Markets had been closed Thursday for the election.

Financial fears also worsened in Tokyo today, where stocks plummeted again as news of a major corporate bankruptcy overshadowed the government’s economic stimulus plan. The Nikkei-225 stock index plunged 844.76 points, or 5.2%, to 15,316 by late afternoon on word that foodstuffs trader Toshoku Ltd. had filed for protection from creditors after piling up debts of $5 billion. The failure is the ninth for a stock-exchange-listed company so far this year.

In South Korea, Kim Dae Jung is seen by many as a pro-labor critic of the country’s huge conglomerates, or chaebols, who will push to end their special privileges and favor small and medium-sized businesses.

In a news conference today, Kim sought to allay fears among investors by vowing to comply with terms of South Korea’s $60-billion International Monetary Fund bailout, which call for strict economic reforms.

The IMF on Thursday formally approved payment of the second installment of its loan to South Korea. But Korea’s financial situation is so tenuous that the Bank of Japan said today it will provide an immediate $1.28-billion bridge loan to keep the government afloat until the IMF funds are transferred early next week.

Meanwhile, the Finance Ministry said today that it had retained U.S. financial giants Goldman, Sachs & Co. and Salomon Smith Barney to “develop and implement a financing strategy for 1998 and provide other economic and financial advice.”

“I will continue to stress the importance of economic development,” Kim said. “But I will also insist that Korea’s economic development take place on a foundation of true democracy.”

He added: “Businesses should no longer feel hand-bound by the overreaching powers of the government. I will open a new age of democratic economic order that respects market mechanisms and competition.”

But some observers say Kim is unpredictable. “He is like a rugby ball,” said Cho Dong Sung, a professor of international economics at Seoul National University. “We don’t know which direction the ball will bounce. He has been making many statements in various directions.”

Chyung Dai Chul, a vice president of Kim’s party, the National Congress for New Politics, predicted that Kim’s alliance with Kim Jong Pil--a more conservative opposition leader who is expected to be the new administration’s first prime minister--will help bring experienced technocrats into the government. “They can give [the new administration] a mature image to overcome the economic crisis,” Chyung said.

South Korea is struggling with a vicious circle of corporate bankruptcies, bad loans in the banking system, tighter credit and more bankruptcies. The stock market and the currency crashed, foreign investors fled and South Korean firms faced the risk of defaulting on overseas loans. Seoul finally turned to the IMF for a rescue.

Outsiders say the nation must reform the chaebols that dominate the economy and which have been helped by huge bank loans granted due to political connections rather than evaluations of profit and risk. While conditions attached to the IMF bailout do not directly aim at dismantling these business groups, some of the required measures are likely to reduce their power and force their corporate members to act more like independent firms.

Requirements of the IMF bailout include a tighter money supply, higher interest rates and deregulation of the financial sector, which will force banks to make profit-oriented rather than politically based decisions.

Still, what may be troubling investors is that “Kim has more consistently defended the job security of workers,” said Richard Steers, a management professor at the University of Oregon and author of several books on South Korean business who was in Seoul for the election.

That sentiment could put Kim at odds with IMF mandates, which seem certain to lead to massive layoffs in coming months. Analysts have forecast that the slower growth and wrenching restructuring required by the IMF conditions will lead to at least a doubling of unemployment next year--up to 5% or more--in a country accustomed to lifetime job security for employees of larger firms.

In any case, Kim must basically abide by the IMF requirements to keep the flow of money coming, since it is to be released in stages. However, some of the conditions are open to interpretation, and thus to possible negotiation.

During the campaign, both Kim and Lee Hoi Chang talked of freeing up the South Korean economy. But these pledges--which are in line with IMF conditions--must be taken with some skepticism, Steers said.

“When they talk about ‘free markets,’ they don’t mean let Ford Motor Co. come in here,” Steers said. “They mean let Samsung, Daewoo and Hyundai have fewer restrictions competing against each other within Korea and in exporting. I don’t know anyone who uses the words ‘free trade’ the way the Americans do.”

Chi Jung Nam of The Times’ Seoul bureau contributed to this report.

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* NEW PRESIDENT: Kim Dae Jung claimed victory in South Korea’s election. A1