South Korea's deputy finance minister, Kim Yong-duk, has crisscrossed the globe in recent months to update foreign policy-makers and investors on his nation's economy. Along the way, Kim has come in for a pleasant surprise: Little, if any, criticism.
It's a welcome change for the man who oversees South Korea's international affairs. After the 1997 Asian crisis, officials here sat for myriad talking-tos. Everyone, it seemed, had a gripe about Asia's fourth-largest economy -- or a suggestion for how to fix it. Now that the economy is sound again -- and set to grow 5.7 percent this year -- praise is being heaped on South Korea. And lots of it.
While good news for policy makers here, the shift has a dark side. Could South Korea be sliding back into complacency? Sure, this question has been asked ad nauseam in recent years and, at times, for good reason. But with South Korea being heralded as a model of economic reform, one wonders if now really is the time to worry about complacency. The fact South Korea will see a leadership change in January next year hardly helps.
"I don't deny the possibility of complacency," Kim says in an interview.
But Kim points out that the government isn't just committed to reform -- in some ways, it's locked into it. Investors, he explains, "are closely watching every movement and gesture of the government, so it's not so easy to retreat from economic reforms. The important point is we're on the right track."
The good news: Kim asks for patience on the part of global investors, and he's justified in doing so. Reinventing an economy takes more than four years, and investors should give Seoul some time. South Korea, for example, accomplished in four years what Japan hasn't in 11. It's upgraded, diversified and strengthened things.
It's also worked to change the way overseas investors view South Korea, as well as how average South Koreans view foreign financiers.
Investors returning
Observers can nitpick all they want, but President Kim Dae-jung gets some impressive marks on the economy. In late 1997, as this economy lay coughing and wheezing amid Asia's financial crisis, investors left. These days, capital is zooming back this way, and fast. Largely, the Kim administration's reforms are why.
The bad news: Much still needs to be done to secure South Korea's transition from developing-economy status to developed. Seoul has diversified the economy and shored up the financial and corporate sectors. But South Korea still needs to increase per capita income, increase competition and go further to reduce the influence of the huge business groups, or chaebol.
Capital markets here are far more developed now than before 1997, but they need additional attention from policy makers.
Trends in the corporate sector, meanwhile, still spook some investors. While stocks here are star performers this year, the so-called "Korea Discount" remains a sobering dynamic. Because South Korean companies are thought to lack transparency and adequate corporate governance, investors assign them smaller market capitalizations than similar ones in other countries.
Since this is Kim's last year in office, his Cabinet is working to force through as many economic repairs as possible. The reason: Whoever replaces Kim may be less dedicated to restructuring. What if the reform process is put on ice? What comes next is, after all, the most politically sensitive issue: The plight of workers. If South Korean companies are to be globally competitive, their labor-cost structures will have to change with the times. Take Daewoo Motor Co, which last week was partly taken over by General Motors Corp. Paying too much to workers it didn't need was a major cause of Daewoo's woes.
South Korea's powerful labor unions are only doing their jobs, of course, protecting their members' livelihoods. But they're also impeding Korea Inc's need to restructure and, in some cases, reinvent itself. At times, Kim's government has shown great resolve in taking steps that, while bad for a few thousand workers, were beneficial for the nation's 47 million others.
Fear of foreigners
The breakdown of talks to sell Hynix Semiconductor Inc is but one example that many South Koreans remain averse to giving foreigners too much access. Labor unions, convinced a foreign owner would slash jobs, were among the most passionate foes of Hynix's sale to Micron Technology Inc, a US company.
Such sentiment shows much work needs to be done to turn some local corporate powerhouses into global ones. Part of South Korea's success has been resisting the urge to stay away from the global economy. During the Asian crisis, Kim was under extreme pressure to close South Korea's economy, as Malaysia did.
As the crisis worsened, everyone from taxi drivers to CEOs blamed foreign investors for abandoning them. The Asian crisis convinced many that the presence of fickle investors left the economy too vulnerable. Luckily, Kim stayed the course and left South Korea open. These days, the president's team is stepping up efforts to win even more foreign direct investment. It has steadily eliminated barriers to overseas ownership.
Still, complacency here isn't without precedent. Economic contentment, after all, played a role in South Korea's involvement in the Asian crisis. Rather than using capital that poured in during the early- to mid-1990s wisely, Seoul squandered it on unproductive ventures that left the economy overextended and vulnerable when the roof fell in.
Then there was the period after South Korea accepted its US$57 billion IMF bailout. While it took Latin America a decade to lure back capital after its meltdown in the 1980s, South Korea was winning back investors within 18 months. Leaders in Seoul and elsewhere in Southeast Asia were quick to take credit for rebounds in their economies, currencies and stock markets.
Taking the hint
They declared victory and decided more painful reforms could wait.
As the global economy became rocky again in 1999, leaders regretted not doing more to fix the underlying problems that caused the crisis. Seoul, in particular, took the hint and got back to work. South Korea went further to cut external debt levels, while the central bank built up its foreign-exchange reserves.
Banks were cleaned up and many bad loans disposed of. A chisel was taken to the chaebol, which long have towered over the economy.
Moody's Investors Service last month rewarded those efforts with another upgrade. It was the first time since 1990 that a recipient of an IMF bailout had received an A-category credit rating. These days, analysts buzz about the likelihood that Standard & Poor's and Fitch also will upgrade South Korea.
Given the tendency here for complacency to emerge now and again, however, some investors and observers are worried. One area of concern is South Korea's banking sector, which last year returned to profit after near collapse a few years ago. "This [reform] is an ongoing process," Tomas T. Balino, a senior IMF adviser, told Reuters news agency late last month. "You can't just relax and say we have done everything that has to be done."
The good news, says Deputy Finance Minister Kim, is that Seoul has no intentions of turning away from revitalizing Korea's economy. "We will continue the reform process," he says.
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