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South Koreans hope new optimism will ring true

By Sohn Jie-Ae
CNN Seoul Bureau Chief

January 8, 1999
Web posted at: 9:43 a.m. EST (1443 GMT)


In this story:
 

SEOUL, South Korea (CNN) -- Every year, as the clock strikes midnight on New Year's Eve, a bell in the center of Seoul is rung 33 times, a spiritually significant number in Buddhism.

At the start of 1998, when South Korea was just starting down the dark tunnel of an economic crisis, the bell seemed to ring ominously of the painful year ahead.

But at the start of 1999, many South Koreans heard sounds of hope from the same bell. Hope that the worst may be over, hope that a recovery is in the works.

Instead of slogans such as, "Let's share the pain together," the call from the government and the media heading into 1999 was to "Start a new beginning."

Shifting from half-empty to half-full

Even government officials have been surprised at the changed popular outlook.

"Just election day in December of last year [1997], it was terrible, but it's now much better than anticipated," Kim Tae-dong, the president's chief economic secretary, said recently.

Helped by steady growth in the country's trade surplus, foreign exchange reserves, which dipped to a low of US $4 billion in 1997, reached US $45 billion at the end of 1998.

The rising confidence also has been reflected by Seoul's stock market. The market index more than doubled in the last three months of 1998 and has had a strong showing thus far this year.

Outside factors such as interest cuts in the United States and the strengthening of the Japanese yen have helped boost South Korea's economy.

It's an economy that by the end of 1997 needed emergency infusions of US $58 billion from the International Monetary Fund just to escape bankruptcy. Years of over-expansion of big conglomerates and inefficiency in the country's financial system came to a head, as Asia's economies started to crumble.

Reform begins at home

While South Korea has not been able to control what happens outside its borders, it has tried during 1998 to correct the internal factors that led to an economic crisis. Profound changes have been brought about by government reform measures.

The government legalized layoffs in the beginning of 1998, and numerous government and public organizations were restructured and overhauled to enhance efficiency.

In addition, a stringent government reform plan was carried out in the banking sector, leading to numerous bank closures, mergers and sell-offs.

Thousands of smaller companies have gone bankrupt. And the government has targeted the bigger conglomerates, pushing them to streamline affiliates and business interests.

The steady pace of such reforms, along with a dip in domestic interest rates that was carried out in conjunction with the IMF, has changed the outlook on the country's economy, both inside and outside South Korea, from negative to positive.

Government officials predict that while the economy will continue to slow during the first part of 1999, it will start to grow in the second half.

South Koreans have registered their economic worries with numerous street demonstrations; here, employees of KIA, taken over by Hyundai, last April in Seoul  

Pain with recent gains

But South Korea has paid a heavy toll in the interim. The number of people out of work has topped 1 million, more than doubling pre-crisis unemployment figures. This has shocked a country with a tradition of lifelong employment.

Lacking a sufficient social safety net, many of the unemployed have ended up living in the streets, parks, subways and train stations. They present a serious social problem that the country is struggling to cope with.

Job opportunities for the young have dwindled. Large corporations that used to hire thousands of new recruits are now hiring just hundreds, if at all.

College students graduating and hitting the job market this year have already nicknamed themselves the "class of death," because they are thought to have little chance of landing jobs.

Some analysts predict a resurgence of violent student demonstrations, not seen in recent years, especially when the new semester starts in March. And, they warn, if demonstrating students join forces with the disgruntled unemployed, watch out.

Enlisting the big guys

The government also faces challenges from the corporate sector. Excessive expansion of the top five chaebol, or family-run conglomerates, is blamed by many for contributing to South Korea's problems.

The chaebol have agreed to some big mergers and swapping of business interests -- but with much reluctance.

One example, resolved only Wednesday, was a confrontation between the government and Hyundai Group and LG Semicon Co. over a government-initiated proposal to consolidate their semiconductor units.

Talks to create the world's second-largest computer memory chip maker had stalled for months as both groups demanded management rights. Bank and government pressure finally forced the smaller LG Semicon to give in.

President Kim Dae-jung was inaugurated last February, in the midst of South Korea's economic crisis  

Racing the clock

While South Korea seems to be entering a new year with a brighter outlook, it remains vulnerable to potential problems -- internal as well as external.

It's what many say is a fight against time.

Many financial analysts say the government, led by President Kim Dae-jung, needs to utilize this momentum for a recovery and build foundations that can sustain reforms and healthy growth.

These can include rules that ensure future financial practices are transparent and based on sound business decisions -- foundations that many Asian economies, including South Korea, did not pay much attention to during their fast-growing days.

Only then can what seem to be the sounds of recovery actually ring true.

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