Sun, May 05, 2002 - Page 11 News List

South Korea gets boost from policy of diversification

ECONOMY While some corporate mergers have failed recently, damaging the country's image, it payed back a US$20 billion IMF loan and has solid capital reserves

NY TIMES NEWS SERVICE SEOUL

South Korea, long in Japan's shadow, is blazing a new trail for Asian economic development.

By encouraging consumers to spend freely on credit, throwing its doors open to foreign investment, and introducing an American-style freedom to fail, South Korea has put itself back on track as one of Asia's fastest-growing and most diversified economies.

And while Japan's stagnation draws attention, South Korea's boom draws investors.

With Seoul's main stock market index nearly doubling since September, foreigners now account for 38 percent of ownership and two-thirds of daily trades. Since 1998, South Korea has attracted US$52 billion in new investment from overseas, more than double what it pulled in during the previous four decades.

Several high-profile foreign takeover failures have given South Korea the image of a country that takes one step backward for every two steps forward. General Motors recently announced a US$400 million deal to take over three auto plants from Daewoo Motor, and Lehman Brothers signed a tentative deal to invest US$1 billion in Woori Finance Holding. At the same time, Micron Technology withdrew a US$3 billion bid to take over much of Hynix Semiconductor after the Hynix board vetoed the deal.

But international rating agencies praise South Korea for bouncing back from a financial crisis five years ago, paying back a US$20 billion loan from the IMF in August and stacking up US$108 billion in foreign currency reserves.

Next year, in fact, South Korea could enjoy higher credit ratings than its historic economic tutor, Japan.

"During the last four years, we have been dismantling the Japanese system," Han Duk-soo, economic adviser to President Kim Dae-jung, said in an interview. "Koreans are not like the Japanese. We are now more like the Americans."

For most of the first half of the 20th century, Korea was a Japanese colony. For most of the second half, it was in economic awe of Japan. Now, as Japan struggles to make Japan Inc viable, South Korea is dismantling Korea Inc.

Only five years ago, South Korea's foreign exchange reserves were disappearing like quicksand, and middle-class women were donating their gold jewelry in a national campaign to save the country from bankruptcy. The Japanese, meanwhile, are settling for a slow decline.

"Unlike Korea, the problem here has not really scared a lot of people," Gerald Curtis, an American political scientist with 37 years experience in Japan, said in Tokyo. "The Japanese public is nervous, but they are not really scared, not really mad."

Hank Morris, an investment adviser with a similar number of years in Seoul, said South Koreans did not have the luxury of delaying reform. "They had to bite the bullet," he said, "take the medicine."

With a US$10,000 per capita income -- a third of Japan's -- South Koreans see themselves as still striving for the brass ring of development.

"Japan is handcuffed by their perpetual search for consensus, the Koreans could not care less for consensus," Donald Gregg, chairman of the Korea Society, said from New York. With years of experience in both countries, he concluded: "In Korea, if something isn't working, they move it, they break it, whatever. The Japanese go along in the hope that tweaking it will make it change."

In Japan, bankrupt companies and banks often receive generous bailouts, on the argument that they are "too big to fail." In South Korea, since 1997, about half of the 30 "chaebol," or family-owned conglomerates, have been allowed to fail, to be restructured or to change ownership.

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