Consider the front runner for the presidency, Kim Dae Jung. A onetime dissident, Kim is a populist who promises to block layoffs at Korea’s overly indebted chaebol (though the International Monetary Fund is demanding them). Last week he tested the patience of the few remaining optimists by holding a video conference with, of all people, Michael Jackson. Yes, that Michael Jackson. Kim, awkwardly trying to cozy up to foreign investors and appease the IMF, convened a panel that would have looked at home on “Politically Incorrect.” Alongside the Gloved One were Wall Street hedgemeister George Soros and former U.S. commerce secretary Mickey Kantor (who says he was told it was an academic conference). Jackson, at least, delivered: he has promised to invest in a Korean ski resort.
It’s nice that someone is bringing money into Korea these days. Such folks are hard to find. The causes of the month-old debt crisis that has made Korea the most serious victim of Asia’s financial contagion and sent foreign investors scurrying are complex. But most agree that the solution, at this stage, is remarkably simple. Seoul must adopt the tough reform regimen imposed by the IMF-including a stop to wasteful, “political” bank loans, a dramatic market opening and a restoration of fiscal balance. And it must do so now, without the whining about “foreign intrusion” that has lately made Koreans sound like world-class bad sports. This nationalistic backlash, more than anything, is sapping overseas investor confidence. The Korean won has dropped by more than 30 percent just since the IMF plan was announced Dec. 3. That makes the U.S. dollars needed to pay off Seoul’s foreign debt even more scarce. And Korean stocks have plunged by half this year.
Time is running out. By some estimates, Seoul now has only about half of the $20 billion or so due by the end of the year on its foreign debts. The IMF will kick in $3.5 billion more late this week as part of a controversial, step-by-step $57 billion bailout orchestrated by the United States and Japan. But Seoul’s success in meeting its obligations depends, in part, on whether overseas commercial banks will “roll over” or extend at least part of Korea’s debt. In interviews with NEWSWEEK, officials at several big New York banks with outstanding Korea loans suggested that they won’t budge on new terms until Seoul gets fully behind the IMF plan. “We want to see reliable comments from the new president,” says one.
Tell that to the candidates. Kim Dae Jung showed his colors last week when his party ran newspaper ads demanding renegotiation of the IMF pact. That boosted his support initially but then backfired when others criticized Kim for exacerbating the dollar crunch. Both candidates have since assured the fund they will implement its plan, says a senior IMF official. But some Korea experts doubt their sincerity: Kim is known to be beholden to the unions, who will fight the IMF austerity plan. His chief rival, ruling-party candidate Lee Hoi Chang, is seen as a key ally of the old-style “Korea, Inc.” He is said to have pals at the top levels of major chaebol, which are sagging under debts that total an astonishing four times their equity.
The prospects for real change seem so bleak that some peeved U.S. officials are considering permitting a default. “There has been some hard thought given to whether or not we ought to just let it happen,” says a senior Clinton administration official, “whereas two or three weeks ago that was not on anybody’s screen.” The tactic smacks more of brinkmanship by Washington than a real policy shift: default is highly risky, not only because it would damage Korea’s market credibility for years, but because Korea is a strategic U.S. partner threatened by the communist North. Still, the U.S. official says that, at the moment, Seoul’s phone calls “are not being returned.” That may be because, for now, no one seems much worth talking to.
