S. Korea Unions Join Pact, Drop Threat to Strike

Militant labor unions climbed reluctantly on board South Korea’s bailout bandwagon Tuesday, dropping the threat of a nationwide strike and signing a landmark agreement to share the pain of economic reforms and accept the inevitability of widespread layoffs.

The agreement, forged after marathon meetings with government and business leaders, marked a milestone in South Korea’s acceptance of the tough conditions imposed by the International Monetary Fund in return for its $60-billion bailout of the nation’s economy.

Tuesday’s carefully worded statement of shared blame represents an admission by South Korea’s management, labor and government that all had contributed to the fiscal crisis and must work together to overcome it.

“We are faced with the current economic crisis because of the businesses’ inefficient corporate management, stiff pay raises and extravagant spending by the people,” the statement read. “Thus, the three parties will make joint efforts to achieve a second economic leap.”

Bringing the unions into the fold was one of the toughest challenges facing President-elect Kim Dae Jung, the longtime dissident who inherited the job of overseeing a massive economic overhaul that could avert a fiscal meltdown but may lead to the laying off of more than 1 million people in a country accustomed to lifetime employment.

“We had significant protest from within our own ranks. But we signed the agreement because we wanted to help the country attract foreign investment,” Pae Sok Bum, the leader of the Korean Confederation of Trade Unions, told a news conference following the talks.

Analysts warned that details of the agreement must be finalized before the National Assembly can take action on a controversial bill that would legalize layoffs in the financial sector. The assembly has agreed to hold off action on the bill until the end of next month.

The timing of Tuesday’s agreement was critical because a delegation of South Koreans arrived in New York this week to persuade a coalition of 40 international banks to roll over $25 billion in short-term loans coming due at the end of March. The country’s overall foreign debt is estimated at $158 billion.

Concerns about the rough road ahead, along with profit-taking by foreigners and retail investors, contributed to a 2.4% drop in the South Korean stock market in early trading today. But since the first of the year, the market has regained nearly all of its losses from 1997, when the crisis broke.

Leaders of the Federation of Korean Trade Unions and the more militant Korean Confederation of Trade Unions, whose tough stance at the negotiating table had led to a decade of double-digit wage increases, agreed to accept wage adjustments and more flexible hours in an effort to boost productivity.

In exchange, South Korea’s government and business elite pledged to implement measures by late February to expand unemployment benefits, limit price hikes, stabilize wages, reduce government spending and speed up reform of the giant conglomerates known as chaebol.

By mid-February, the government promised to produce a slimmed-down budget and a plan for reducing its work force.

In an effort to attract foreign funds, the IMF had urged the South Korean government to liberalize restrictive labor laws that make it nearly impossible to legally lay off workers even if a business is in serious financial trouble. However, union leaders complained that thousands of workers are already being quietly let go by troubled companies.

After fighting even the inclusion of the word “layoffs” in the tripartite agreement, union leaders finally agreed Tuesday that once these measures were in place they would drop their opposition to the controversial layoffs bill.

There are at least 19 debt-strapped financial institutions facing bankruptcy or up for sale.

However, the agreement includes a stern warning that companies will face serious punishment if they are caught using the economic reforms as an excuse to abuse workers.

Unions had demanded that the government and businesses bear a larger part of the pain of reforms, arguing that it was the aggressive expansion of the giant chaebol, supported by previous governments, that created the debt crisis.

President-elect Kim told business leaders Tuesday that he was not happy with the initial restructuring plans offered by two of Korea’s largest chaebol--Hyundai and LG--because they did not spell out in enough detail exactly how they planned to improve their financial pictures.

He had urged the companies to identify what unprofitable businesses would be eliminated and to demonstrate that the founders were willing to inject privately held assets into their cash-strapped companies.

Today, Samsung Group Chairman Lee Kun Hee announced that he will sell $80 million worth of personal real estate and invest the proceeds in his companies, donate 90% of his salary to a company welfare fund and place $6.2 million worth of personal savings and stocks in an unemployment fund.

Samsung also agreed to abolish the controversial system of cross-guarantees of loans by 1999, introduce consolidated balance sheets by 2000 and sell off the company’s shares in the Joong-Ang Daily News.

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

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