Page 1 of 2 In Korea pessimism trumps reality
By Donald Kirk
SEOUL - Ask almost anyone here what's wrong with the unpopular government of
President Roh Moo-hyun, and the response is likely to be the economy first and
North Korea policy second.
Recent graduates complain they are virtually unable to find jobs commensurate
with their education even after they have gone on to advanced degrees. Farmers
and workers demonstrate, sometimes violently, against a planned free-trade
agreement
(FTA) with the US that they fear would deprive them of dwindling income. Owners
of small and medium enterprises say the gargantuan chaebol, or
conglomerates, are strangling them, and middle- and lower-income people claim
the skyrocketing cost of real estate, much of it in the hands of the chaebol,
means they can no longer dream of comfortable living.
What's going on here? How can it be that a society that has pulled itself out
of the depths of a disastrous financial crisis nearly a decade ago, whose
economy is growing at the rate of several percentage points a year, and which
is now one of the world's 10 or 12 most powerful economies can still reflect
such unhappiness when it comes to the views of so many people?
The primary answer seems to be a sense of social conflict, similar to that in
the US and other major economies, in which the rich are perceived as getting
richer, favoring intertwined networks of friends, relatives and business
associates, at the expense of the rest of the people. At the same time, the
government appears uncertain whether to pursue social welfare policies
befitting Roh's background as a crusading leftist labor lawyer, or to coddle
the chaebol, perceived now as before the 1997 crisis as the backbone of
the economic "miracle" - miraculous in its growth after the Korean War and
miraculous again in its recovery over the past 10 years.
Statistically, the South Korean economy is one of the world's strongest, with a
gross domestic product approaching US$900 billion after 14 quarters of unbroken
growth. The central Bank of Korea (BOK) forecasts an impending slowdown, but
expansion is high compared with just about every other major economy in the
region other than that of China. The latest pronouncement from the central bank
has the GDP likely to increase by 4.4% next year - a figure that might seem
somewhat disappointing compared with this year's 5% increase but which is
hardly cause for alarm.
In fact, the downturn, if that's what it is, may not last. Beginning early in
the new year, according to Kim Jae-chun in the BOK's research bureau, "economic
growth will start to gather pace", with the economy increasing 4.7% in the
second half despite somewhat lowered growth rates in all sectors except
construction. Growth of exports, accounting for 40% of the economy, may slow
but only slightly - from a 12.9% increase this year to 10.8% in 2007 - as the
value of the won, at its highest point since October 1997, the month before the
economic crisis, raises prices on foreign markets.
You would never conjure an image of such seeming prosperity, though, from the
impassioned shouts of farmers and workers, egged on by radical activists, as
they march through the streets of Seoul protesting the latest round of talks
between Korean and American negotiators on an FTA.
"Down with FTA" was the slogan, in English and Korean, borne by marchers here
while talks in the US state of Montana neared the meltdown stage. While farmers
burned cows in effigy, inspectors rejected a shipment of beef after X-rays
revealed tiny bone chips - a possible conveyer, said the Koreans, of mad-cow
disease (bovine spongiform encephalopathy).
The chief US negotiator, Wendy Cutler, called for "full reopening" of the South
Korean beef market as a prerequisite for a deal. The issue was critical, since
South Korea, once the second-largest foreign market for US beef, had suspended
all imports for three years after mad-cow disease was reported in the United
States but had agreed to accept shipments if totally bone-free, a proviso used
to reject all US beef since the ban was supposedly lifted.
The issue is laden with emotions. Rice farmers have been among the most
violent, seeing US imports as driving their high-priced produce off the
markets. An FTA, said Oh Jong-ryol, leading the protest, would "hurt our food
safety and security while only benefiting" the US.
While anti-FTA sentiment exposes the economic fears of Koreans at the
grassroots, the government sees a deal as opening up US markets to ever larger
exports, enriching not only the chaebol but a restive middle class.
The talks, however, have foundered on another issue - Korean objections to
stiff anti-dumping penalties imposed by the US to stop aggressive Korean firms
from flooding markets with discount products often at less than the cost it
takes to manufacture them. The Americans just can't see why their country
should take all this stuff while South Korea remains in essence closed to more
than token imports of such big-ticket items as motor vehicles, and Korean
shops, unlike those in Hong Kong or even China and Japan and the rest of Asia,
purvey virtually nothing made in the United States.
Korean nationalism, it seems, works against any real deal that's likely to
satisfy both sides, much less silence the protesters.
Foreign direct investment in Korea is expected to wind up at about $11 billion
this year, down from a high of $13 billion two years ago, and may go down
further as investors worry about the implications of the investigation into the
agreement under which Lone Star, a Dallas-based equity-fund investor, was to
have sold Korea Exchange Bank (KEB) to Kookmin Bank, by far South Korea's
largest bank, for $7.3 billion after taking it over for $1.2 billion in 2003.
Lone Star, after charging that the investigation was motivated by anti-foreign
sentiment, canceled the deal, and now prosecutors are zeroing in on how Lone
Star managed to acquire KEB, hit hard during the economic crisis as a result of
bad loans, at such a low price. A former bank president and a lobbyist are
under arrest, four others, including a senior Finance Ministry official, are
under indictment though not yet arrested, and prosecutors have obtained arrest
warrants for two top Lone Star executives who refuse to return to Korea without
a guarantee of immunity.
If the Lone Star deal for KEB seemed too good to be true, foreigners believe
Koreans in positions of power and influence are upset by the profits that
foreign funds made by rescuing banks and companies laid low during the economic
crisis. Foreigners contend they took major risks in helping to bring South
Korea back to the level at which it's now worthy of Standard & Poor's "A"
credit rating, and they wonder whether Koreans will respond
