Economic Pain in S. Korea Hits Top to Bottom
At the Myongdang Cathedral, where thousands of demonstrators once gathered to rally for democracy, a new kind of crowd forms every day at noontime: the unemployed, the hungry and the homeless.
Shin Sok Yoon, 38, who is deaf and has been unemployed since the bookbinding company where he worked went bankrupt in December, came to the cathedral’s 50-day-old soup kitchen, Peace House, this week looking for job leads and a square meal.
Yoon’s wife, who also has significant hearing loss, has gone to work in a cafeteria to support their 8- and 10-year-old sons. Her wage: $12 a day.
It is symptomatic of just how flimsy--some say nonexistent--is the South Korean safety net that Yoon and his family have received no government benefits or job placement help.
“I tried the Korean Handicapped People’s Assn., but they weren’t any help either due to IMF,” Yoon scrawled on the back of a well-worn newspaper.
Unemployment rose faster than anyone imagined after Korea reached for a bailout from the International Monetary Fund last November. The official rate has more than doubled to 6.7%. Yoon fears he may be among the last rehired, after the legions of able-bodied unemployed, who already number between 1.4 million and 3 million, depending on who’s counting.
And the mass layoffs expected from big businesses have not even begun.
Some fear this “shock therapy” could threaten social stability in a nation in which lifetime employment was considered the norm just last year and which seems neither psychologically nor institutionally prepared to deal with mass job loss.
As the crisis deepens, homeless people--who disappeared from the streets of Seoul decades ago--are now a daily sight in subways and train stations.
A new report says their numbers have swelled from about 1,000 in February to 3,000 in June. Most hail from the middle or working classes; 71% had lost their jobs within the last six months; 37% were high school graduates; and 5% were college graduates.
Economic Pain Worse Than Most Expected
Despite the reputation Korea has earned as the IMF’s star pupil embarked on a crash course in Wall Street-style economic reform under the tutelage of new President Kim Dae Jung, the wrenching crisis is hurting worse--in every strata of society--than most Koreans expected.
After rebounding 28% in the first quarter, the South Korean stock market has tumbled 29% since April 15. It fell to an 11-year low on May 26, though prices have edged up since then. The main stock index ended Friday at 341.53, up 2.7% for the day.
Some say the first-quarter run-up was the product of irrational investor exuberance spurred by a stable won, sweeping deregulation of the financial markets and plenty of wishful thinking about the length and depth of Korea’s economic woes.
“There was false confidence in how quickly the reforms were progressing--and naivete,” said Richard Samuelson, head of SBC Warburg Dillon Read, an international brokerage house. “The president was outspoken, and early in his presidency he came across with very market-oriented rhetoric. The reality is [that] implementation is moving more slowly than the rhetoric.”
Economists have a new set of worries. Some question how serious the chaebol, or conglomerates, really are about downsizing--and whether it can be done without a safety net in place. Others predict that the plummeting Japanese yen will erode the competitiveness of Korean exports such as semiconductors and autos, which are seen as the only hope for economic recovery.
Exports fell 2.6% in May, according to the Ministry of Commerce, Industry and Energy, because of slumping demand in Asia, lost price competitiveness, high interest rates and accelerating bankruptcies.
Korea still ran a $3.77-billion trade surplus, however, because imports plunged 37.5% as a result of moribund domestic consumption and a credit crunch.
Though the full effect of the yen’s decline will not be felt in Korea for about nine months, a yen at 150 per dollar--versus Friday’s 139--would spell trouble, said the LG Economic Research Institute in Seoul.
If yen depreciation does not pull down the won, whose stability at about 1,400 to the dollar has been one of the bright spots of the Korean economy, government policy might.
Inflation, Real Estate Price Drop Feared
Samuelson warned that a government plan to recapitalize the banks could trigger double-digit inflation and depress the won to 2,000 to the dollar by the end of 1999--lower even than during the currency crash last December. He also predicted that real estate prices could fall 50% this year.
“It’s very fashionable to be bearish right now,” he concluded.
On Friday, though, the threat of labor strife eased when the Korean Confederation of Trade Unions canceled a series of general strikes, and its leaders recommended that the union participate in a tripartite commission.
The union had boycotted the commission, which groups labor, business and government leaders for talks on restructuring the nation’s economy.
Life may be hell for the millions at the bottom of Korea’s economic heap, but it’s white-knuckle time for many at the top of the financial food chain as well.
Ask Milton S. Kim, the 37-year-old U.S.-educated president of SsangYong Investment and Securities. He started out selling shares in Korea Inc. at the subsidiary of the conglomerate founded by his father and headed by his elder brother. He made headlines for introducing such radical policies as awarding merit pay, promoting women and aggressively wooing clients with golf and ski excursions--all anathema to conservative Korean financiers.
By last year, he was helping the dangerously debt-ridden chaebol unload unwanted subsidiaries--the SsangYong auto company to Daewoo, its paper company to Procter & Gamble, hotel and cement holdings to Marriott and Texas Industries.
Now Kim himself is on the market, together with his family’s 30% share in SsangYong Investment. Eight months ago, he hired a Wall Street firm to help sell his company.
How much for a chunk of the nation’s fifth-largest brokerage?
“I’m not saying we’re selling it at the market,” which has depressed company share values, Kim said, “But at today’s price, less than $20 million.”
Companies Pressured for Faster Reforms
Though a few chaebol like Ssang Yong are holding fire sales to save themselves from bankruptcy, many have been reluctant.
President Kim was reportedly unimpressed with the restructuring plans submitted by the chaebol in May, and the government is now trying to force the top five conglomerates into faster reform by pressuring their bankers to reconsider loans to the weakest chaebol subsidiaries.
At the same time, government sources said, Kim had been anxious that the conglomerates not begin mass layoffs until after provincial elections, which were held Thursday.
Kim won the presidency with the slimmest of margins, and the parliament is controlled by an opposition determined to give him no honeymoon.
On Thursday, however, Kim’s party racked up a substantial victory that is expected to help him woo opposition defectors--perhaps enough to give him a majority in parliament and a stronger mandate to press ahead with his reforms.
The victory gives Kim a reprieve from domestic woes as he departs today for a nine-day visit to the United States, including a stop in Los Angeles.
Some pundits say Kim’s twin policies of demanding fast restructuring and simultaneously trying to minimize mass layoffs are irreconcilable. But a trade union spokesman and a senior banker each argued in separate interviews this week that Korea must seek ways to blunt the “barbarity” of a bloodthirsty free market even at the cost of slower recovery.
Meanwhile, some chaebol leaders are fighting what they see as unwarranted interference from a government that has promised to break the Korean tradition of authoritarianism and economic command-and-control.
Daewoo founder Kim Woo Choong recently sounded a nationalistic call to defend Korea against Western predators.
“The argument for dissolution of the chaebols is a theory advocated by advanced nations to eat away at the Korean domestic market and to eliminate their competitors,” he was quoted as saying. “The economic crisis was brought on by poor economic policy management by the government. It’s not right to blame conglomerates for that.”
The debate is expected to last as long as the pain goes on--perhaps two or three more years. Meanwhile, the worst off are slipping back into the poverty that Korea believed it had conquered--and faster than the government can cobble together programs to help them.
Desperation Blamed for Increase in Suicides
On Friday, Kim acknowledged that relief programs are lacking and promised to tackle the problem upon his return to Korea.
Peace House is now feeding 150 people, with 15 more showing up each day for food, counseling, legal aid or a comfortable armchair to rest in.
“Our purpose is to encourage the unemployed, and we pray that they will get spiritual peace,” the Rev. Chang Dok Pil said.
Financial desperation is blamed for an increase of nearly 36% in suicides in the first quarter of this year, according to the Hankook Ilbo newspaper. For the first time, the paper said, there were more suicides than traffic fatalities.
Efron was recently on assignment in Seoul. Researcher Chi Jung Nam in The Times’ Seoul Bureau contributed to this report.
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A spurt of optimism after the bailout of South Korea’s economy triggered a stock market rebound in January, but reality has since set in. The jobless rate has more than tripled and stocks hover near an 11-year low. Korea’s jobless rate and monthly stock market closes since May 1997:
Latest close: 341.53
Sources: Bloomberg News, Datastream