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The house that Kim rebuilt;Politics;Korea Study Guide

They are calling Kim Dae Jung Asia's Mandela. Korea's new president has to persuade students, unions and bosses to bury their differences to help the country get back on its feet, writes Paul Markillie.

WHEN Kim Dae Jung was elected president of South Korea in December last year, the country was in the midst of a financial meltdown. The situation remains grim, though painful changes are under way to build a more open and competitive market economy. Few doubt that South Korea can make such a transformation. The reason is Mr Kim himself. He represents a remarkable change in leadership.

Mr Kim is a veteran campaigner for democracy, who some people describe as "Asia's Mandela". Indeed, the man who is now president was imprisoned by South Korea's former military rulers and once only narrowly escaped being assassinated. He also comes from the Cholla region in the south-west, which has long been one of the poorest parts of the country, unlike previous presidents who had their political base in the south-east.

Mr Kim is trying to reconcile the country. One of his first actions after becoming president was to release many political prisoners. He also assured businessmen, many of whom at first believed he was a dangerous radical, that he would be a safe and even-handed pair of hands. Even his choice of prime minister, Kim Jong Pil, a retired general who was a key member of a coup in 1961, carried with it the message that he wanted to leave the darker side of South Korea's past behind in order to begin the urgent task of rebuilding the economy.

That has meant painful changes as South Koreans adjust to the consequences of the financial tornado that has ripped through the region. This has been particularly jarring for South Korea, which emerged impoverished from the rubble of the civil war, but yet industrialised rapidly to become a member of the world's rich club. A whole generation has grown up without knowing what unemployment or a recession was - hence the shock of having to turn to the International Monetary Fund for a $58 billion (pound;36bn) bail-out.

Not surprisingly, the cutbacks and changes strike deep at the heart of a way of life that many believed secure. There used to be almost full employment and people kept their jobs for life. Yet, by the summer, when tens of thousands of small and medium-sized firms had gone bust, the unemployment rate had doubled to 7 per cent. And still many South Koreans could not really comprehend their economic decline. Some of the jobless still dressed for work and left their homes as usual, only to spend the day wandering in parks or hanging around railway stations.

Yet there is optimism. And "IMF crisis" sales in shops and cut-price "IMF menus" in restaurants help lighten the load. They also show the resolve of ordinary South Koreans to get through the crisis as quickly as possible. But structural changes still have to be completed. The collapse was in large part caused by the massive levels of debt run up by banks and companies, made intolerable by a huge devaluation in the won, the national currency. In general, South Korea has drawn praise from the international community for its attempts to remedy this.

Among its remedies, reform of the financial sector is one of the most important. Those banks which are not closed will in future have to lend money only on commercial terms. In the past, banks were directed to lend money to certain companies and for certain projects, as the country rapidly built up industry and exports. Even in the teeth of the crisis, some banks continued to lend money to technically bankrupt companies because they feared being dragged down if those firms went bust. Yet that only starved otherwise healthy companies of credit, creating even more business failures.

The economy is also being opened up to foreign investment. The legacy of Japanese rule, which ended in 1945, left many South Koreans suspicious of foreign investors. Yet behind its closed markets, South Korean consumers often got a raw deal. Keeping out foreign products and competitors only made the giant family-run conglomerates, called chaebols, even fatter. They dominate the economy, but are being urged to slim down and dispose of some of the myriad businesses into which they diversified. Many small firms in South Korea have long complained that life is made especially tough for them because the chaebols have their tentacles in almost every type of business in the country. Nor did the dominance of the conglomerates do much to encourage entrepreneurs.

Naturally enough, all the upheaval and job losses have inflamed South Korea's notorious unions. Yet Mr Kim is offering them a deal: accept redundancies in return for social security (something that barely existed before), retraining and a pledge by companies to introduce less authoritarian management. There is plenty of scepticism about whether each side will keep to the bargain, but protests have been relatively muted compared with the violent strikes inprevious years.

Hanging over all of South Korea's prospects is its unpredictable former enemy in the North. Mr Kim is promoting what he calls a "sunshine policy" towards North Korea in an attempt to defrost relations across the world's most heavily fortified border. Millions of people have probably died of starvation in North Korea and politicians in the south worry about how they would cope if the Stalinist regime collapsed and they suddenly had to look after 23 million hungry people.

For South Korea's government, the only real guide is the reunification of Germany, which was hugely traumatic, even though West Germany was a very affluent nation. Unification could still be a long way off, which is sad for Korean families that have been divided since the war. But that may allow time for some form of normal relations to resume and for both economies to be strengthened. A united Korea may then be a stronger one.

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