Sword of Reform Gathering Rust

Korea is undergoing the final stage of economic reform, the result of which can make or break its fate. This is the third and last of a series of articles aimed at shedding light on where the country stands and which way it will turn as it faces a critical crossroad._ED

At the heart of a recent loan scandal involving a young and ambitious venture businessman are bribes that greased the palms of financial regulators of the Financial Supervisory Service (FSS), the sword used to remove cancerous fat from Korea's financial sector and bring it back to health.

After nearly three years of restructuring efforts, the collapsed Daewoo Group remains a ``monkey on the back'' of Korea Inc. with proof being its flagship, Daewoo Motor, that has yet to find a new owner.

Hyundai Group, the country's largest chaebol, is fighting for its existence, confined to a life support system. The group's holding firm, Hyundai Engineering and Construction, had a brush with fate, not meeting maturing obligations.

The financial markets are so fragile that any small nudge appears to be strong enough to topple them.

By many indications, the task ahead of Korea appears to be more daunting as it was three years ago at the onset of the financial crisis.

Some say that it is the typical symptoms of reform fatigue resulting from three years of heady recovery efforts, pointing at what happened to Mexico in its third year of recovery from a crisis in the 1980s.

Others argue that it is a diagnosis just scratching the surface and that the problem lies much deeper.

The root cause of the problem can be found in the lack of economic leadership.

On a macroeconomic scale, the government kept the economy in an expansion mode, according to some experts.

The stock markets were artificially boosted to bind the electorate in a false dream of roses ahead of the April general elections. The investors are being rudely awakened from stupor and forced to face stark reality. On Monday, the indexes at the Korea Stock Market and KOSDAQ tumbled to the lowest levels of the year. One rude throwback into reality is the loan scandal that is rocking the country now.

In the corporate sector, Daewoo, one of key causes for the near-collapse of the economy at the start of the crisis, still casts a long shadow.

The government and creditors tried to sell Daewoo Motor to Ford Motor but Ford pulled out, sending the financial markets down in a tailspin.

Although just about every influential person in the government apparently coached the sale efforts one way or another, there was nobody who claimed responsibility when the deal went sour. A witchhunt followed and some minnows took the blame. The losses from the failed sale are estimated at billions of dollars.

No direction has been decided on as how to deal with the Hyundai problem.

One day, a senior government official promoted the application of market principles only to see his proclamation dashed by a creditor bank official the next day.

As a result, doubts are being cast on the seriousness of Korea's will to continue reform. Foreign investors are reluctant to commit themselves on a long-term basis, leaving the markets at the mercy of hedge funds that target short-term gains at the expense of market instability.

The lack of economic leadership couldn't come at a worse time.

oh@koreatimes.co.kr

http://www.korealink.co.kr/kt_biz/200010/t200010311715314311372.htm

-- Martin Thompson (mthom1927@aol.com), November 01, 2000

Answers

Daewoo Motor to Reduce Workforce by 3,500, Sell Assets

The financially troubled Daewoo Motor yesterday unveiled its self- rescue plan that includes a large slash of its workforce, the shutting down of overseas assembly plants and sale of its assets in a bid to generate 900 billion won in cash surplus next year.

In a press conference held at Daewoo Corporation's headquarters in Seoul, newly appointed Daewoo Motor chairman Lee Jong-dae said, ``The self-rescue plan this time will be launched separately from the sale deal with General Motors, but will ultimately help enhance Daewoo Motor's value and consequently pose a more attractive deal to GM.''

He stressed that the rehabilitation plan was designed to prevent the company from asking the creditors for further funding as well as to enable the firm to become self-sustainable at an earlier date.

According to the plan, restructuring should include cost-savings of 900 billion won through cutting the workforce by 3,500, helping the company return to a profit of 100 billion won in 2002.

In detail, the company will raise capital worth 100 billion won by selling its stake in Delphi Korea, a parts venture with Delphi Automotive Systems Corp., and real estate assets, as well as slashing administrative costs totaling 420 billion won.

Yesterday's move came on the heel of a spate of unfortunate developments that are driving the ailing carmaker to the verge of bankruptcy.

On September 15, Ford backed off from its final bidding for the take- over of Daewoo Motor. Further creditors have been reluctant since then to extend funds amounting to 450 billion won by the end of year on concerns that they won't recoup their money.

In connection with the restructuring of the workforce including lay- offs, chairman Lee said the issue would proceed through discussions with labor unions, but he did not specify how, when, and how the workforce will be rationalized and laid off.

The figure of 3,500 is equivalent to 18.4 percent of the total workforce employed in the firm's domestic operations.

``The pressing issue is the rationalization of the workforce at this point and management is now launching negotiations with labor unions. We expect the unions to accept our proposal at an early date,'' he said.

The company said it is considering early retirement and rationalization of the workforce at its Pupyong plant whose operation ratio stands at just 50 percent as of now compared to the Kunsan and Changwon plants.

``However, the wage cuts will be minor because employees are already suffering from a low-level income,'' said, Lee Young-kook, the new president of Daewoo Motor.

Other measures include reduction of production capacity in DW-FSO, a car-making assembly in Poland, DWAR in Rumania and AUTOZAZ in the Ukraine.

``The overseas operation will be restructured enough to generate profits. But if they are found to be non-viable even after restructuring, they will be liquidated,'' president Lee said.

The company's business strategy will weigh on focusing on already successful car models, consequently creating profits, he added.

Chairman Lee said Daewoo Motor's pressing problems would not be able to be solved by the company alone, adding, ``We need help from lenders as well as other parties including the government.''

Daewoo Motor shareholders last week approved a proposal by creditors to appoint Lee Jong-dae as chairman and Lee Young-kook as president, giving them the mandate to overhaul the company's operations.

ppasang@koreatimes.co.kr

http://www.korealink.co.kr/kt_biz/200010/t200010311725504311376.htm

-- Martin Thompson (mthom1927@aol.com), November 01, 2000.