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Korea-centrism and the foreign
'threat'
By David Scofield
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.
(Copyright 2004 Asia
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