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MSNBC: No pain, no progress: South Korean voters need a candidate who will impose tough measures

Published December 1997, © MSNBC

By Kari Huus, MSNBC

As South Koreans go to the polls to choose a new president, the options are grim. All three candidates are committed to enforce rules attached to a $57 billion loan to get the economy out of the doghouse. And that spells thousands and thousands of job cuts and the associated pain. The only thing worse, however, would be choosing a president who can't carry through on the promise.

IN NORMAL TIMES, the three candidates in South Korea's presidential election would be easy to distinguish. Lee Hoi-chang, a former Supreme Court judge, is a conservative from the ruling party. He's running neck and neck with longtime dissident Kim Dae-jung, who was accused of communist leaning under South Korea's former military dictator and narrowly escaped a death sentence. A distant third is Rhee In-je, a flag-waving nationalist who broke away from the ruling party to run for the presidency. For a democracy just more than a decade old, the differences should be a source of pride.

But these are not normal times. With the country's finances in shambles, all three candidates are running on the same platform: to put in place hard-hitting measures and reforms mandated by the International Monetary Fund in exchange for the biggest bailout loan in history.

Who wins is not as important as whether he has the political will -- and skill -- to push through unpopular policies. The new president will be up against a public understandably shocked by the financial crisis, unaccustomed to layoffs and prone to large demonstrations.

The pressure to backpedal will be enormous, but the consequences of doing so would be as well. "If world markets conclude Korea is trying to weasel out of the bailout agreement, it will be worse than if they never had one," says Nicholas Eberstadt, researcher at the American Enterprise Institute and Harvard University. If populist resistance to the IMF holds sway, South Korea may plunge into an economic abyss similar to that of Latin American countries in the 1970s and 1980s, he says.

ECONOMIC BETRAYAL

The shock of the crisis is profound, in part because the South Korean economic model so dramatically pulled the country out of grinding poverty three decades ago and catapulted it into the ranks of industrialized nations in the 1990s. The economy has been centered on mammoth company groups, or chaebols, that gave their support to politicians in exchange for easy credit from state banks.

South Korea's boom -- like Japan's before it -- was based on exports of lower-cost goods, from semiconductors to stuffed toys.

The problem is that other Asian countries followed this export model as well, undercutting Seoul's prices. But the traditional government-industry structure didn't adjust -- it just kept pouring money into what had become unwieldy, lumbering conglomerates. Bad debt stacked up.

Despite mounting warnings over the past few years, South Korea's leaders followed the path of least resistance -- status quo. "There were efforts to encourage the small business sector, but chaebols control a large chunk of the economy, and you can't put them in handcuffs," says Keith Rabin, president of KWR International, a New York communications firm that works with the Korean Federation of Industry.

The IMF plan attempts to rectify quickly what Seoul might have tackled gradually. But the South Korean public's first reaction was to equate the IMF with the United States, and with hardship. The headlines scream of nationalism and resentment, like these recent stories, covered by a number of dailies: "Mid-level executive of a large company works himself to death in a bid to increase sales limited by IMF," and "Twenty-year-old commits suicide after failing to get job."

CANDIDATES STRUGGLE

The question that looms over all the presidential candidates is how well they can manage South Korea's anger. Kim, the opposition candidate now thought to lead the pack, last week tried to tap into the vein of public resentment by announcing that if elected he would renegotiate the IMF package. The markets didn't buy it, plunging 20 percent on the news, and South Korea's currency, the won, continued to skid.

More surprising, South Koreans didn't seem to buy it. In unofficial polls (released secretly by newspapers banned from publishing them in the lead-up to the election) Kim lost ground. He later retracted the comment and promised to follow IMF dictates "to the letter." Even so, Kim is seen as an opportunist by some, and potentially disruptive to the ranks of military and civil servants. "I think there will be instability if Kim wins," says a South Korea hand of many years who advises the U.S. government. "Every time I look at one of his policies, there's something at the bottom that goes 'tilt.' Many are flawed."

On the other hand, his main competition for the job, Lee Hoi-chang, is from the ruling party -- which just badly bungled handling of the financial crisis. Even as recently as a few weeks ago the administration was misrepresenting the status of South Korea's foreign exchange situation, as if the IMF wouldn't notice.

The third candidate, Rhee In-je, tried to appeal to nostalgia by comparing himself to strongman Park Hung-chee, who presided over the country's early industrialization but also introduced a reign of political oppression. Rhee, who broke away from the ruling party, will be a factor in the election only as much as he takes votes from his former colleague, Lee.

A NEED FOR LEADERSHIP

The gross political and economic mismanagement of the last few months seems way out of whack for a government stacked with talented young technocrats, says Eberstadt of the American Enterprise Institute. "You'd be excused for thinking South Korea was North Korea for the way they behaved in the financial markets for the last two months ? They were more amateurish than any other time in 50 years." And even though the current president, Kim Young-sam, has issued his humblest apology for the disaster -- twice -- in recent weeks, Koreans are not feeling forgiving.

So despite past resistance, the South Korean public may finally be ready to throw out the old order and embrace reforms. Many analysts are cautiously optimistic that at the bottom of it all, South Koreans are pragmatic. "Personally I think that after the election there will be a much more lets-get-down-to-work approach," says Rabin of KWR. "Korea needs international capital. They don't gain anything by defaulting."

Indeed, the risks of passing up this opportunity to reform are compounded by the prospect of reunification with North Korea, which could come suddenly, as it did in Germany. For that event, which would come with an immense financial burden, South Korea needs to be far better prepared than it is.

"What it is urgently important is to have the framework in place to meet the challenge", Eberstadt says. "The last five years have been spent largely avoiding those reforms they will need to attract the capital they need to rebuild the north. This little scare should be a wake up call."