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South Korea
goes into free fall
By Jamie Miyazaki
These are unhappy times for South Korea. Hailed
only last year as the most vibrant economy in North
Asia, it has quickly entered a period of political and
economic free fall. Things started taking a turn for the
worse nearly as soon as the World Soccer Cup euphoria
had dissipated. And it became evident that the consumer
credit-fueled recovery policy following the 1997
financial crisis had gotten out of hand. Matters were
made worse by simmering labor disputes, Pyongyang's
shrill nuclear posturing, and a rancorous presidential
election - quickly followed by the SARS (severe acute
respiratory syndrome) outbreak and a multi-billion
dollar accounting scandal at SK, with ensuing
revelations of chaebol slush funds.
The
political instability appears to be approaching critical
mass in the wake of a second vote by a special counsel
to investigate corruption in the Roh administration,
which originally triggered a shutdown of the National
Assembly, and in the run-up to next April's
parliamentary elections. To be fair to the Roh team,
some problems it has faced over the last year were
beyond its control (SARS, for example), and others would
have posed a challenge to even an experienced
administration (like the bursting of the consumer credit
bubble). Moreover, with such a bitterly close
presidential election, the chances of a graceful loser
are always slim. Throw in a hostile press, plus an
unsuccessful Grand National Party (GNP) lawsuit aimed at
obtaining an electoral recount, and the stage was set
for acrimony.
But as Donald Rumsfeld pointed
out, weakness is proactive; it's just that Roh has been
inept at seizing the initiative. This situation has been
exacerbated by the administration's inexperience. Roh
had just seven months of experience as a minor
government minister before becoming president, and much
of his team is composed of "386 confidants" (people in
their 30s who attended university in the 1980s and were
born in the 1960s), who are frequently criticized by the
media for being unprofessional. Roh's frequent gaffes,
especially those that questioned his own competence, and
his erratic policymaking style had the opposition GNP
soon smelling blood.
For example, take two of
Roh's electoral pledges: to reform Korea's rigid labor
markets and rein in chaebol excesses. Labor unions have
taken Roh's left-leaning tendencies as a carte blanche
to gouge as many concessions from employers as possible
via industrial action. Meanwhile, unemployment -
particularly amongst graduates and youth - remains high,
and large sectors of the workforce are employed as
contract workers whose contracts are continuously rolled
over with few fringe benefits while employers are afraid
to take on permanent staff owing to union militancy and
rigid labor laws. Nestle's rumblings that it may close
its South Korean factory owing to labor strife does not
bode well for Korea's aspirations to become North Asia's
business hub. Although the government is moving to
tighten labor legislation, its credibility has been
dented by too often caving in to striking workers'
demands.
Chaebol reform is arguably an even
bigger issue considering their central role in the
economy. Even after 1998s reforms, chaebol still produce
nearly two thirds of South Korea's exports and attract
70 percent of foreign capital inflows into Seoul's Kospi
index. However, the massive accounting scandal at SK
Group earlier this year has revealed that the family-run
conglomerates are still up to many of their old tricks.
Granted, the fact that SK Group even found itself in
trouble is a testament to some degree of corporate
reform, but further restructuring of the chaebol has
failed to materialize as Roh has caved in to pressure
from big business to delay reforms until the economy
recovers.
Unfortunately, largely because of the
fallout from the SK affair and the resulting political
volatility, next year's predicted economic rebound of
4.7 percent growth is being called into question. As Kim
Choong-soo, president of the Korea Development Institute
(KDI) put it: "Despite the expected improvement in the
economic outlook for 2004, uncertainties surrounding the
domestic political climate is one of the major risk
factors.''
The major repercussion of SK's
accounting fraud has been the investigation into slush
funds used by SK Group and other chaebol in last year's
presidential election. The funneling of secret chaebol
funds to politicians in return for favors has long been
widespread. However, Roh was meant to represent a new
generation of politicians over which chaebol held less
sway. Unfortunately, revelations of a corruption scandal
involving presidential secretary Choi Do-sul and other
aides have challenged this and undermined Roh's
reputation for integrity. The scandal has snowballed to
include other prestigious conglomerates, such as Samsung
and LG, and engulfed politicians of all major parties.
In a dramatic attempt to restore his authority
and engineer a political turnaround before April's
parliamentary elections, Roh proposed a national
referendum on his leadership and promised to resign if
he loses. He also dangerously asserted that moral
authority, not his electoral mandate, was "the sole
asset I have in administering state affairs". Less than
a year into his tenure this high-risk and unorthodox
tactic has increased political volatility and raised
doubts about Roh's judgment.
Adding further
uncertainty to Korea's problems is whether the vote will
even occur (owing to its dubious legality and Roh's
characteristic procrastination). But even if it were to
proceed, it is unlikely to give Roh the fresh mandate
for reform he desires. Polls suggest he would win -
despite 30 percent approval ratings - if only to
preserve some semblance of (a rapidly disintegrating)
political stability. However, all the divisions in
society between his young and liberal supporters and
older, more conservative people would be re-exposed.
Opposition parties' implication in the slush
funds scandal has not prevented them from exploiting the
situation. Largely for self-serving reasons, they are
opposed to a referendum and instead proposed the
creation of a special counsel to investigate corruption
in the Roh administration. Roh's vetoing of the proposal
on November 25 triggered a GNP walkout from parliament,
impeachment threats and the surreal hunger-strike
one-upmanship by GNP leader Choe Byung Yul, as well as a
protest hunger strike at Choe by a Roh loyalist. The
parliamentary paralysis also hit the 1,198 items waiting
for parliamentary deliberation, including the 117
trillion won ($97 billion) budget plan for next year and
the Korea-Chile free trade agreement.
The
resubmitted special counsel bill has now passed with the
necessary two-thirds majority to prevent a presidential
veto, the first time that a presidential veto has been
overridden since 1961 thanks to backing from the
number-two opposition party, the Millennium Democratic
Party (MDP). Ironically, Roh was an MDP member up until
September when it split into a pro-Roh faction (the Uri
Party with 47 seats) and an anti-Roh faction (the MDP).
As with many of the current problems, Roh could hardly
have been surprised at this turn of events - the MDP
split had been apparent since Roh's nomination as MDP
presidential candidate last year. However, Roh made
little effort to calm the bad blood between the two
factions and the acrimonious break-up has added to the
disharmony and further eroded his parliamentary
influence.
Having already squandered the narrow
window of opportunity to push through reforms following
his inauguration (the president's approval rating after
100 days was below 50 percent, compared to his two
predecessors who had achieved 60-80 percent support by
the same point), the necessary momentum required to
re-establish his agenda will be difficult in light of
recent developments. By dividing his own support base
(of 101 MDP seats), turning the MDP into a resentful
opposition party and reducing his prospects of winning a
parliamentary majority in the April elections, Roh has
created more headaches for himself. If he wishes to
avoid becoming the president of paralysis for the next
four years, the Uri party and MDP need to reunite to
overturn the GNP majority. Unfortunately, now that the
MDP has thrown its weight behind the special counsel
bill, this looks remote.
If the Uri party fails
to earn at least one third of the assembly seats in the
elections, then the prospect of the three other parties
blocking Roh's reform agenda and ramming home
constitutional amendments becomes unavoidable. As it
stands, the GNP has a strong chance of retaining control
of a parliamentary majority until the end of Roh's
second term in February 2008. This is not good news for
political stability and much-needed political and
economic reform, which include jump-starting the
nation's stalled per capita income and propelling the
nation further up the development ladder. As a result,
more than a few eyebrows were raised when Roh said in a
recent television debate that "few countries have as
much hope as Korea".
Perhaps in the face of
widespread dissatisfaction with political corruption and
democratic paralysis, Roh's indicted aides might take a
leaf from the pages of Francois Leotard, a former French
defense minister who is currently being tried for
corruption relating to slush funds in France. When asked
by the presiding judge: "If I follow your defense
correctly, these 'special funds' contributed to
democracy?" Monsieur Leotard, without a hint of irony,
replied "Of course."
(Copyright 2003 Asia Times
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