Crisis Hits Mr. & Mrs. Korea
West's imposed reforms begin to take a toll as firms shed hundreds of thousands of jobs.
While Americans predict gleefully that East Asia's economic crises will bring a post-Christmas gift bag of cheaper imports, Choi Yun Soon is faced with a far different reality.
Seated on the heated floor of her cozy and spotless apartment, the Seoul housewife said recently that the price of liquid propane gas, which generates the warmth underfoot in many South Korean homes, has risen 20 percent since October. Her husband, a factory worker, has gone without a paycheck for the same period because clients haven't been paying their bills. The couple has stopped eating out, Mr. Choi takes the bus to work, and their two children wear neighbors' hand-me-downs. In time, Mrs. Choi says with a weak smile, the economy "must get better."
Behind her veneer of optimism, there is little certainty in the Choi household. And as bankers and government officials from various countries work to ensure that South Korea's overextended financial industry does not drag down other economies, experts warn there is no reason for international complacency, either.
For one thing, the prescriptions of the International Monetary Fund (IMF), which is leading a nearly $60 billion bailout of South Korea, may force too many companies out of business and ultimately delay a recovery.
The country's economic turmoil - now mainly experienced in meeting rooms and on trading floors - is likely to soon make itself felt in public as South Korea's suddenly unemployed register their upset. Without a concerted effort to build a broad consensus on economic policy, says Yoon Youngmo, international secretary of the Korean Federation of Trade Unions, "It is possible for the whole society ... to go into a very dangerous downward spiral."
And there is a third possibility that Western, and particularly US, attempts to bring about East Asian economic stability and simultaneously promote hard-edged, market-knows-best capitalism may produce a backlash.
In the past six months, the IMF has been called in to assist four Asian countries - Indonesia, the Philippines, South Korea, and Thailand. Korea's case is the most urgent, since it is the world's 11th-largest economy and one whose collapse would immediately hurt major financial institutions in Japan and the US.
Bankrolled by the world's developed countries, the IMF is an emergency lender of last resort, a place for countries to turn when private banks and individual nations shake their heads. But in exchange for assistance, it often demands change.
In Korea's case, IMF reforms will fundamentally alter the economy. The country's leaders built an East Asian powerhouse by promoting key industries, creating an educated work force, sharing the wealth relatively widely, and creating protected markets at home to strengthen big corporations for export battles overseas.
The government has promised to move from this state-guided capitalism toward more open markets, but change has been slow. Now change is here. On Monday, the National Assembly passed IMF-backed reform bills that go some way toward making the financial industry more independent of bureaucratic control. But it put off a controversial measure that would allow employers to lay off workers more easily.
The IMF also wants to draw foreigners and foreign cash into the economy by raising interest rates. But it is also requiring that the government keep inflation down, meaning that local businesses will have to pay more to borrow money but will be unable to raise prices.
At the same time, the depreciation of the Korean currency has meant that companies face radically higher costs to import raw materials from abroad - in a country with few natural resources of its own.
The IMF strategy, says Lee In Hyung, financial-markets research director at LG Economic Research Institute in Seoul, could "kill almost all large and medium-sized companies." He and other economists worry that the IMF's approach may make casualties of relatively healthy firms.
South Koreans have a long tradition of in-the-streets activism, and analysts worry that IMF reforms will lead to social discord. The government has demanded hard work from Koreans in exchange for low unemployment and relatively high wages, and workers feel as if they are about to be sacrificed, in a society with no safety net.
On Tuesday, Korean media reported government estimates that 120,000 people lost their jobs in November. Mr. Yoon, the union spokesman, says the figure for December will be higher. Union leaders recognize that layoffs are under way, he says. "What we are opposed to is dismissals being used as a magic wand that will solve everything," he says. "It's not a magic wand in Korea."
The IMF is seen as promoting downsizing and the sort of expediency that characterizes American corporate behavior - a survival-of-the-fittest capitalism that some Asians aren't enthusiastic about. David Hitchcock, a senior associate with the Center for Strategic International Studies in Washington, wrote in this newspaper yesterday that a backlash "could be heading toward the West."
"For now, Asians appear to blame their own governments, banks, and businesses. But if the harsh measures only now sinking in lead to many more bankruptcies, business closings, and layoffs, the blame could swing across the Pacific."
In Tokyo, some economists look across the Sea of Japan and insist that Koreans must change in ways the Japanese have resisted for years.
"For the time being, Korea should abide by the Western rules, no matter what they feel in their hearts," says Susumu Takahashi, chief economist at the Japan Research Institute Ltd. "Once the country is back on track, then they can start looking for some kind of midpoint between the Asian way of handling things and the Western way."