Institute for Corean-American Studies, Inc.
965 Clover Court, Blue Bell, PA 19422
Tel : (610) 277-9989; (610) 277-0149
Fax: (610) 277-3289
January 15, 2004
SEOUL - More South Koreans perceive the United States to be the greatest threat to their security than assign that role to North Korea. A recent survey by Seoul-based polling firm Research and Research indicates that 39 percent of Koreans view the United States as the greatest threat to Korea's security, with 58 percent of those in their 20s feeling this way. Of the total, 33 percent saw North Korea as the greatest threat.
For those of us living here the numbers are not hard to believe, but these recent data suggest more than just how South Koreans view North Korea, but also how they perceive the threat of foreign participation in Korean affairs more generally.
The premise that the United States poses a threat to South Korean security is predicated on the following assumption: Should the US take some action against North Korea, Pyongyang would retaliate against Seoul. Or read another way, a foreign power that initiates actions incongruent with those of the South Korean government, regardless of its intended benevolence, is a threat. Given this, the perceived threat foreign business and investors pose is obvious and in sharp contrast to five years ago when foreign companies and investment were viewed as saviors of the country's moribund economy.
At the end of 1997, after six months of failed attempts to prop up the quickly depreciating South Korean currency, the government announced that foreign-currency reserves were decimated. The country approached the International Monetary Fund (IMF) to ask for what would become the largest bailout in IMF history. Loans from the IMF and the Asian Development Bank amounted to more than US$56 billion, with the first installments arriving almost immediately after the request.
President Kim Dae-jung, then newly elected, talked fervently about instituting fundamental changes to the way South Korea does business. These included regulation changes designed to enhance foreign investment, new rules governing transparency, and a trilateral commission created with members of Korea's largest firms, the government and organized labor. It all seemed promising and, if the rhetoric was to be believed, the collusive relationship of Korea's largest firms, government and banks, all largely responsible for the economic implosion they were digging out from, were to be changed forever. Some in government and business quietly suggested that the crisis was a blessing, as the IMF bailout came with strong strings attached, terms that would compel the government to make the changes that many knew had to be implemented. Now the government had an excuse to make politically risky moves: the IMF made me do it.
This time of reconstruction become known among Koreans as the "IMF era" - a time synonymous with hardship and despair. This was perhaps the first sign that things were not going to go the way investors and lenders alike had hoped.
The economic crisis that gripped the country was viewed, consistent with the beliefs of a people who perceive themselves as on the losing end of thousands of years of foreign intervention, as an outside assault, as something that had to be gotten through, overcome, endured; but it did not inspire a collective redress of the fundamental issues that led to the crisis in the first place.
Some of the reforms optimistically pronounced by the newly inaugurated Kim Dae-jung did stick. The government did make it much easier for foreign assets to invest in the country, and the repatriation of profits was greatly improved. But the ontology that led to the crisis in the first place was not really dealt with, and Kim's ideas of playing hardball with the chaebol were quickly squashed as these family-run linchpins to South Korea's economic health let it be known that as they succeed, so too would Korea; with the opposite also being true: the collective debts of the nation's five largest companies in 1998 hovered around $450 billion.
By 1999, Kim Dae-jung was becoming far more interested in a North Korea summit and his bid for a Nobel Peace Prize than the lack of real reform within his nation's economy. And, as has been recently splashed across the nation's papers, the very companies that Kim had pledged to reform were being tapped to raise and illegally transfer funds to the North Korean leadership to ensure the summit took place.
As for the rest of the economy, debt-financed consumer spending was the easy, obvious answer to get the economy humming. Before 1998, it was virtually impossible to use a credit card outside of the capital's international hotels, but by 2003 more than 100 million credit cards had been issued. The credit-card companies operated under the same logic that pervaded the rest of the economy: the government wanted people to spend and as such would de facto back all credit issued. And it was issued to, quite literally, anyone, including the chronically unemployed, middle-school students, the incarcerated, and even the deceased. Credit checks were often perfunctory or not performed at all, and as the vast majority of those signing up (kiosks sprouted up everywhere: subway stations, malls, in front of high schools) for cards were first-time debtors with no credit history, there was nothing to check.
Much like the export-led growth of the 1990s, this approach to increasing numbers was all about inputs, without sustaining efficiencies. Massive amounts of liquidity were made available, and the Korean consumer went from a net saver in 1997 to having an average family debt of about $27,000 in 2003, with shockingly little equity.
By 2003 foreign direct investment had slowed to a trickle. Labor inflexibility, government interference and contradictory legislation were the most oft-discussed reasons for avoiding "greenfield" investment in South Korea. But the government continues to advocate "foreign-friendly policies and initiatives", making it clear that capital is welcome, if it's pliant.
By the end of November, LG Card, the largest issuer and the first of Korea's indebted card firms (LG Card has at least $18 billion in outstanding debt), was unable to pay its bills. The foreign control of three of the creditor banks, plus a majority foreign stake in Kookmin Bank, a major LG Card creditor, presented a problem for the South Korean government. Most of Korea's banks, trusts and other financial institutions that weren't allowed to fail in 1997-98 received huge amounts of public funds - more than $130 billion - giving the government strong backroom leverage over lending activities and bailout terms. But now there was opposition. The government partially acquiesced late last week and with LG Group agreed to take a larger share of the risk, and an additional $1.5 billion was put up by creditors to keep it alive, for now.
The initial apprehension among foreign-controlled credit banks was followed by a Bank of Korea report issued late last month. The report states that "foreign-owned banks are not contributing to domestic financial market stability or advancement" as "local banks controlled by outside investors are seeking quick return on investments by lending to households, instead of extending loans to businesses" - or bankrupt credit-card firms.
The problem of foreign stakeholders has become a problem for the management of South Korea's third-largest conglomerate, SK, as well. Sovereign Asset Management acquired a majority stake in SK by securing a 15 percent (due to the Byzantine nature of stock-ownership structures in Korea) stake in SK Corp, the company's de facto holding company. The chief and son of the late founder of SK Corp, Chey Tae-won, was convicted last spring for his involvement in accounting irregularities and share rigging involving amounts over $1 billion. He was sentenced to three years in prison last June but was released in September on bond awaiting appeal.
In sharp contrast to the key players in Italy's Parmalat scandal, for example, Chey has resumed the reins of management at SK, assuming a very public posture seemingly undaunted by his conviction.
Sovereign tried to have him and two other senior board members removed from management but with little success. Sovereign has declared that they should be replaced with "efficient, ethical" Korean managers, but far from rallying support from the Korean public beleaguered by endless corruption scandals swirling throughout government and business, the nation's media reacted with charges of "arrogance" on the part of Sovereign for "interfering", as one business editorial put it, in the internal affairs of SK; and trying to "steal", as the English-language Korea Times asserts, "Korea's third-largest company". SK has since attempted to dilute the value of Sovereign's holding by issuing treasury stock to friendly banks and subsidiaries.
There is nothing that will draw Koreans together faster than the belief that outside forces are threatening. The belief that Americans (foreigners) are a bigger "threat" to South Korea's security than their nuke-wielding brethren in the North exemplifies a renewed Korea-centered philosophy that's apparent throughout government and, by extension, the economy. In the most homogenous country in the world, where "our" is used in the naming of everything from banks to political parties, to be Korean, even of the Northern variety, is perhaps less threatening in the South than the prospect of foreigners having an enduring stake and voice in the country. Capital and investment are always welcome in South Korea, but input into how these assets may best be used is increasingly unwelcome.
David Scofield is a lecturer at the Graduate Institute of Peace Studies, Kyung Hee University, Seoul.