Curing Korea’s crisis?
Stripped of all economic verbiage, the rescue package put together by the International Monetary Fund and agreed this week by the South Korean government will spell pain for the workers in the hope of reviving capital accumulation.
The memorandum of understanding agreed between the IMF and South Korea puts in place the largest ever IMF bail-out package, whose size is equivalent to that for the 1995 Mexico peso crisis. So big is South Korea’s financial crisis that all the world’s major economies are involved in the rescue. Emergency IMF-brokered funding is projected to exceed $50 billion, with the United States and Japan expected to contribute $20 billion. A significant new development is European involvement in the bail-out package, whose size demanded extra funding beyond the Pacific rim. “But the plan also represents a recognition by top financial officials of the US, Japan and the European countries that the global implications of the crisis require a global solution” (Financial Times December 2 1997).
South Korea has become the world’s 11th largest economy by averaging 8.6 % annual growth for the past three decades. Per capita income has grown from $80 in 1960 to over $10,000.
South Korean government disagreements with the IMF demands over mergers and acquisitions, foreign stockholding limits and opening of the bond market have now been resolved. Seoul has agreed to lower the gross domestic product growth rate for next year to 3%; to restrict the inflation rate to less than 5% for 1998; and to hold the current account deficit at 1% of GDP (around $5 billion) for the next two years.
Commercial banks are to be ordered to ensure that their capital is 8% or more of total credits, failing which they will be subject to merger and acquisition. South Korean banks have been hit by the country’s economic meltdown after seven major chaebols (conglomerates) became insolvent. Two sizeable businesses collapsed only last week - unlisted Onuri, the country’s biggest travel company, and the mid-sized Soosan group; Soosan, in which the giant Hyundai chaebol is a major investor, filed for court protection for three of its subsidiaries.
Even as the agreement was being finalised, share prices on the Korean stock market fell as conditions attached to the bail-out package were reported and news of yet another imminent corporate bankruptcy leaked out. Shares in Halla, the country’s 12th-largest chaebol centred on shipbuilding, were suspended, but the conglomerate was saved at the last moment after creditor banks agreed to provide immediate lifeline loans.
On Tuesday, it was announced that the operations of nine merchant banks would be suspended at the same time as reports of the IMF’s demands for a sharp reduction in chaebol cross-loan guarantees intensified fears of more corporate failures. Analysts have noted a growing fear of a chain of collapses, with merchant banks calling in loans.
Halla Engineering & Heavy Industries Ltd and Samsung Group had already announced large-scale restructuring plans. Halla said it would lay off 3,000 employees, half of its total, next year. Samsung plans to cut its work force by 30%. The Korean Congress of Trade Unions proposed a special law on job stability, to be enacted immediately, and the setting up of a pan-national institute comprised of trade unions, management, government and civic groups. The KCTU has proposed a united front to the officially recognised Federation of Korean Trade Unions.
Samsung this week issued a statement saying that it had shelved plans for a £450 million investment in Britain. Given the financial turmoil at home, Samsung has decided not to expand its electrical appliance plant in Teesside, where it had intended to start producing faxes and personal computers.
On Monday, the three bourgeois presidential candidates in the current contest to succeed President Kim disassociated themselves from him, and promised South Korea’s chaebols, which have vast overseas interests, the means to dodge restrictive IMF reforms. This met with a robust response from People’s Victory 21, which is based on the KCTU and ‘progressive forces’ and whose presidential candidate, Kwon, has been frozen out of media coverage. Victory 21 blamed the current crisis on unproductive, speculative investment and government favouritism by conservative politicians.
Prime Minister Ko Kun announced cutbacks in government spending, reducing personnel and restructuring government organisations. The government offered to create a 1.2 trillion won ($960 million) fund for lay-offs and vocational training.
Dong Ah Construction, the South Korea’s fourth largest construction firm, announced it would reduce 20% of its directors and 10% of its overseas staff, including 560 people assigned to an irrigation project in Libya. Daewoo Group head Kim Woo-Jung called for a freeze on wage rises and cuts in spending.
Reacting angrily to large companies’ introduction of restructuring plans, including employee layoffs and wage cuts, the KCTU announced rallies against the austerity plans: “Businesses are trying to pass liability for the current economic crisis to workers,” said Kim Yu-son, head of the KCTU’s policy-making bureau.
KCTU protest rallies for job security, in alliance with civic groups, were held in Seoul on Wednesday. Union activists carried placards demanding action to save jobs and the immediate dissolution of the finance and economy ministry, arguing it was responsible for South Korea’s financial crisis. Further demonstrations are taking place this weekend in Seoul and five other cities.
While the IMF and South Korea’s rulers come to agreements in the interests of world capital, South Korea’s workers will be expected to bear the brunt of the crisis. Unemployment in South Korea is projected to rise three times next year to 8%, destroying the ‘jobs for life’ schemes put in place to achieve social peace following the Korean War.
However, given the militancy shown in the general strike earlier this year, there is every chance that the imposition of harsh conditions will be vigorously resisted. Whether that resistance develops a strong, working class political base will be decisive in sustaining the fightback of Korean workers and determining the eventual outcome.