Korea Bailout Jimmies Open Hermit Nation
$55 billion IMF deal, signed yesterday, forces Koreans to accept foreigners in economy.
SEOUL, SOUTH KOREA — Everybody does their little part. If you've got a dollar, a mark, or a yen, you can drop it in a collection bucket around Seoul, and contribute to the nation's dwindled foreign reserves.
But saying it's a drop in the bucket is an understatement.
A $55 billion rescue loan - the biggest ever - was given to Korea Inc. by the International Monetary Fund (IMF) Wednesday, in an attempt to reverse a nose-diving economy and stop Asia's financial rot from spreading to the rest of the world.
The crisis has achieved what US trade negotiators never could: swinging open the reluctant door of the Hermit Kingdom to foreigners. "Outside-country people" will now be able to own half of a Korean company, for instance.
Korea's antiforeign feelings go back centuries, when farmers grew accustomed to competing in a zero-sum game with farmers in the next valley or kingdoms across the sea. Many Koreans find it incomprehensible that their economy now needs to go through the "bone-aching pain" that President Kim Young Sam recently called for.
"The country's pretty open in that we have lots of foreign trade. But the minds of the general public aren't that open," says Rho Sung Tae, president of Hanhwa Economic Research Institute. Many Koreans think American special interests are behind the IMF's market opening measures.
"There will be resistance to this foreign presence in the economy," says Mr. Rho.
Asking the IMF for help was the ultimate - if inevitable - capitulation. But opening the economy to foreigners and international standards shouldn't be much compared to the past. Koreans have experienced centuries of direct foreign domination, by Mongols, Chinese, and Japanese. In vain, they have aspired to control their destiny while nicknaming their country "a shrimp among whales."
North Korea's ideology of self-sufficiency, known as juche, is a version of this old Korean ideal. And although North Korea is a cruel and bankrupt dictatorship while South Korea is an aspiring and affluent democracy, Southerners are rubbed raw by North Korean propaganda calling them a "lapdog" of imperialist Americans.
Deputy Premier and Finance Minister Lim Chang Yeul, who negotiated the deal with the IMF over several tense days of talks, is known for nationalistic concerns, not liberal economics, and is seen as a heart-felt defender of the nation by xenophobic Koreans. The conservative policymaker is a tough negotiator, but analysts say a more liberal minister might serve his country's real interests better.
In any case, the trend of foreign involvement had already begun. Last month, Coca-Cola bought South Korea's biggest bottler from Doosan group for $430 million.
Before that, Procter & Gamble took over Ssangyong Paper, the first major takeover of a South Korean company by foreign investor.
Last week, Michael Jackson was in town scoping out a Swiss-style ski resort that was an ill-conceived diversification project by a major producer of underwear and socks.
Under the IMF's loan conditions, Korean business will also become more transparent.
Consolidated balance sheets and income statements, certified by international accounting companies, will encourage investors. A raised ownership ceiling for foreign investors to 50 percent of a company should "pave the way for mergers and acquisitions," says Mr. Rho.
But Koreans who are used to smoking growth rates will be shocked at the suddenness of next year's slowdown. A IMF-mandated growth rate of 3 percent - revised from 6 percent - may throw 1 million people out of work. Koreans can expect inflation and higher taxes as well.
Workers, used to lifetime employment and nothing but a gossamer social safety net under them, may take to the streets, particularly given Korea's rambunctious trade unions.
For decades under military rule they were tightly controlled. But with democratization since 1987, they were free to demand and get double-digit annual wage increases which have risen to the point of uncompetitiveness in global markets.
The government called for layoffs to be a measure of "last resort." But Halla Heavy Industries is firing half of its 7,000 workers in the next month. Samsung is cutting staff by one-third. Hyundai cutting one-quarter of its executives. Many white-collar office workers have begun early morning milk and newspaper delivery routes as side jobs.
"Indiscriminate and unilateral action [by] companies ... would trigger very serious social unrest," says Yoon Young Mo, spokesman for the Korean Confederation of Trade Unions.
Korean officials had hoped to delay the opening of the financial market.
But now, says Rho, Korea must face the "Western style of [directly] resolving problems [instead of] the Oriental style of delaying resolution."