S. Korean Firms Announce Reforms

In a stunning concession to the depth of the economic crisis engulfing their nation, leaders of four of the most powerful business conglomerates here pledged today to take steps that will drastically reduce their influence in the South Korean economy.

The announcement by the leaders of Korea’s Samsung, Hyundai, LG and Sunkyoung groups represents the most significant impact to date of the economic reforms imposed by the International Monetary Fund in exchange for its $57-billion bailout of South Korea.

The IMF had sought a restructuring of the giant Korean conglomerates whose aggressive debt-financed expansions were behind the $153 billion in foreign debts that precipitated South Korea’s current financial crisis.

The chaebol, or conglomerate, chiefs released their pledge to reform their operations following a meeting today with President-elect Kim Dae Jung, who has promised international lenders that he will faithfully implement the IMF demands.

Bowing to international pressure, the executives agreed to improve their accounting procedures, pledging that they will release comprehensive financial statements, abolish cross-guarantees of loans between chaebol sister companies, reduce their high debt levels, get rid of unprofitable firms and make their management more responsive to shareholders.

Any measures that affect the chaebol will have a dramatic ripple effect throughout the South Korean economy. During the first half of 1997, the top 30 conglomerates, made up of 150 interlinked firms, accounted for 77% of all sales made by all companies listed on the South Korea Stock Exchange and 45% of the net profits, according to Daewoo Economic Research Institute. Nearly all these conglomerates are family owned.

If the chaebol follow through with their pledge, which did not carry any timetable for implementation, it will result in fewer, smaller conglomerates whose businesses will be more focused on specific industries, according to Eun Mee Kim, an associate professor at Ewha Womans University and author of a book on chaebol.

She predicted the chaebol will also be forced to reassess risky ventures at home and abroad that have been financed by mountains of loans acquired through political influence.

“This will be a true test of whether these business conglomerates can be really globalized and competitive in the international marketplace on their own,” she said.

While there have long been pressures in South Korea to reform the chaebol, it took a fiscal crisis and pressure from the international community to elicit these changes from the business elite.

Some South Korean analysts are fearful that even with the IMF pressure, the chaebol will find a way to delay the changes or lessen their impact.

“So many times they have made a promise and never delivered, so we’ll have to keep our eyes on them,” said professor Cho Dong Sung, a chaebol expert at Seoul National University.