Seoul-Searching
Singer Michael Jackson thrilled South Koreans on Friday by agreeing to invest $100 million in a ski resort in South Korea’s southwestern mountains, with an eye to building a “Neverland Asia” theme park, according to his new business partner, Ssangbangwool Co.
George Soros he isn’t, but Jackson’s deal was hailed here as a small ray of hope for this hammered economy, and one of a growing number of indicators that the foreign investors who have been window-shopping for bargains in devalued South Korea may now be ready to buy.
South Korea has been in the International Monetary Fund’s economic intensive care unit since November. Now it is increasingly being viewed as the star pupil in the IMF’s large class of Asian underperformers.
New President Kim Dae Jung, described as a friend of Jackson’s, has embarked on sweeping reforms, and is laying out the red carpet to foreign investors in hopes of boosting their holdings in the traditionally xenophobic country, from the current 1.5% up to the international standard of 20%.
Foreigners have been pouring money into stocks, which have rallied 46% in local currency terms since Jan. 1, but they have held off on direct investment to see whether proposed reforms materialize. “The rhetoric has not yet hit the road,” said former U.S. Ambassador Donald Gregg.
Details of the theme park deal are still being negotiated, but Jackson has committed $100 million to the ski resort, Ssangbangwool said. There was no comment from Jackson, who left Seoul on Friday.
The collapse of South Korea’s currency has fostered hopes that the nation’s modest tourism industry can lure more visitors, notably skiers, with lower prices.
Jackson visited South Korea in November to campaign for Kim, and he toured the proposed resort site in the ski town of Muju on that trip. On Wednesday, he attended Kim’s inauguration ceremonies in his trademark red jacket, black top hat and sunglasses.
Jackson is by no means the only buyer in town. Billionaire financier Soros, who also attended the inauguration, has hired a South Korean firm to investigate investment opportunities in the country, and he met Thursday with the chairman of Daewoo Group to talk business--though not specific investments, a Daewoo spokesman said.
The moves by Soros were credited by analysts with driving up South Korea’s stock market another 4.46% on Friday.
Seoul’s top-flight Shilla Hotel, whose clientele is 85% foreign-owned, is booked solid with inaugural guests--and senior foreign executives. Some of them have arrived on corporate jets and are presumed to be checking out some of the subsidiary companies and affiliates that Korea’s cash-strapped chaebol (conglomerates) are eager to unload.
“I see an unprecedented surge in activity, and I’ve been here almost a decade,” said Thomas P. Pinansky, a senior foreign attorney at law firm Kim, Shin & Yu.
South Korea is in dire need of foreign currency.
The news that Jackson would invest came the same day a team of South Korean officials took a financial roadshow to Tokyo to convince creditors there to roll over crushing short-term loans that are coming due this month. Many of the Japanese banks are desperate to beef up their own balance sheets to meet new capital-adequacy requirements that take effect April 1.
After Tokyo, the Korean officials will head to Europe and North America, the second- and third- largest lenders to the country after Japan.
Local media have been warning of a “March crisis” in the foreign exchange markets if the Japanese creditors refuse to roll over the loans, potentially pushing thousands of South Korean companies into default. Some analysts have said that $17 billion in short-term loans come due in March and April, but officials say that figure is exaggerated.
The South Korean Finance Ministry said Friday that creditors heartened by South Korea’s financial progress are agreeing to roll over loans and that as a result, only $5.2 billion will probably have to be repaid this year.
However, financial and political leaders here are in unanimous agreement that South Korea’s painful economic ordeal is just beginning.
“We’re nowhere close even to seeing the corner, let alone turning the corner,” said You Jong-Keun, a former Rutgers University professor who is now the president’s senior economic advisor. “This is no time for complacency.”
The official forecast is for 1% economic growth this year; private estimates range from about minus 0.2% to minus 5%.
The government estimates that unemployment hit 3.1% in January and could rise to 5% by the end of the year. But labor leaders contend the actual rate is closer to 11% and warn that 2 million people may be thrown out of work and onto the mercy of their families, since South Korea has no safety net to cushion them.
Meanwhile, a massive credit crunch is choking the life out of small and medium-sized companies. Bank interest rates are about 24%, but lending in February is down 40% compared with last year, and the thousands of borrowers who can’t meet the desperate banks’ lending standards must pay double that from curbside moneylenders.
A record 3,323 companies went bankrupt last month.
The South Korean currency, the won, which closed at 1,645 to the dollar Friday, down nearly 50% since last summer, is making exported goods cheaper, and everyone is banking on an export boom to save the country’s economy. While imports fell 39.9% in January compared with a year earlier, exports were flat, in part because exporters have had trouble obtaining financing. That problem is easing, but not fast enough to save some firms.
Chi Jung Nam of The Times’ Seoul Bureau contributed to this report.
