ad info


Asiaweek TIMEASIA.com CNN.com
 > magazine
 home
 intelligence
 web features
 magazine archive
 technology
 newsmap
 customer service
 subscribe
 TIMEASIA.COM
 CNN.COM
  east asia
  southeast asia
  south asia
  central asia
  australasia
 BUSINESS
 SPORTS
 SHOWBIZ
 ASIA WEATHER
 ASIA TRAVEL

Other News
TIME.com
TIME Europe
FORTUNE.com
FORTUNE China
MONEY.com
Asiaweek Services
Contact Asiaweek
About Asiaweek
Media Kit
Get up to 3 months of Asiaweek free when you subscribe online!


OCTOBER 20, 2000 VOL. 26 NO. 41 | SEARCH ASIAWEEK

Crisis of Confidence
Koreans were supposedly enjoying the region's best economic recovery. So why have they suddenly become so pessimistic?
By TIM HEALY and LAXMI NAKARMI Seoul

When Kim Sung Hee wants to gauge the state of the South Korean economy, she surveys the expansive lobby lounge of the Grand Hyatt in Seoul where she works as a waitress. "When the economy is strong, this place is really crowded," she says, looking over a near-empty room that is normally jammed on a Tuesday morning. Next door at the Terrace coffee shop, manager Lee Jae Ho notices the same thing. He says daily sales have dropped by about 20% in recent weeks from even a month ago. Combining a magnificent skyline view of southern Seoul with reasonable buffet prices, the Terrace had been a popular place among Seoul's middle class. But recently Lee has sensed a mood shift: "From what I have overheard here, I am worried that a new economic crisis is for real," he says.

You won't find "coffee-shop attendance" on any list of leading economic indicators, but it's nevertheless key. Average South Koreans, beneficiaries of what has been widely hailed as Asia's strongest economy coming out of the economic Crisis, are nervous. Less than two weeks ago, Samsung Research Institute's widely respected consumer attitude survey found that optimism has declined more than 10% in the last six months. A couple of newspaper surveys published recently found that bearish sentiment was widespread. In a poll of 1,200 Koreans conducted by the Kyunghang Daily, 82.2% feared that South Korea could suffer from another major economic crisis in coming months. Indeed, nearly two out of three respondents in an opinion survey conducted by Maeil Economic Daily in late September said they think the country is facing a real economic crisis.

What is probably most surprising about these poll results is that the economy, at least on the surface, seems to be chugging along rather handsomely. It grew by 12.8% in the first quarter and 9.6% in the second. And although most economists expect further slowing as the year goes on, growth in 2000 is nevertheless expected to total 8.8%, according to the International Monetary Fund's latest estimate released last month. Inflation is expected to be a tame 2.2% this year and the unemployment rate should average 4.2%.

HALF-EMPTY OR HALF-FULL?
While average South Koreas have turned decidedly pessimistic on their economy, the numbers comparing the situation in 1997 versus today are mixed
LOOKING GOOD
1997 2000
Current-account balance: -$20.35 billion $14.7 billion
Foreign debt $180.5 billion $142 billion
Corporate debt (debt-equity ratio) 360% 205%
ON THE OTHER HAND
Bank lending (growth) 49% 3.3%
Price of oil $21.5 $30.50
Non-performing loans (% of total) 5.5% 11.1%
Source: Asiaweek Research
But while the headline economic numbers seem good, it isn't hard to find where the gloom is coming from. A recent fall in semiconductor prices threatens a key Korean export. And the stubbornly high cost of oil will be a further drag on both manufacturers and consumers with a heavy reliance on imported petroleum. The continued fall in stock prices is both the result of negative sentiment and a reason for more pessimism. The Seoul Composite stock index is down more than 40% this year.

Less easy to calculate but just as depressing, especially for the markets, is the growing feeling that economic reforms have ground to a halt. First, Ford backed out of its commitment to buy Daewoo Motors and then, last week, a consortium of foreign buyers announced they would not fulfill an earlier commitment to buy bankrupt Hanbo Iron & Steel. Hanbo has been in bankruptcy almost four years and now must start the hunt for a buyer all over. On Wednesday, the top 135 executives at Daewoo all sent in their resignations to creditors running the company as a way to take responsibility for the Ford fiasco.

The failure of those deals is also revealing a profound ambivalence among South Koreans. They know that such setbacks will only worsen foreign sentiment about how committed the nation really is to change, which will have a ripple effect on the stock market and foreign direct investment. But they perceive that, often, reform is just a euphemism for pain.

Lee Jae Han may soon lose his job as an assistant bank branch manager (in hopes that he might yet keep it, he doesn't want to reveal which bank he works for). The branch is being closed. At 45, Lee says he isn't sure what he'll do if he finds himself out of work. "I have a big mortgage and two teenage children I won't be able to put through college." Korean banks, in the midst of an industry shakeout in which at least some institutions are likely to fail, have made announcements that they will lay off a combined 3,000 employees in November alone. One Korean union official bewails the prospects for these people: "Thousands of those who were laid off in 1998 by banks still haven't found a reasonable job," says Lee Nam Ki, chairman of the Korean Federation of Trade Unions.

Consumer fear is already translating into less spending — especially among average Koreans. This time of year is normally a prime season for soon-to-graduate college job-seekers to buy smart new business suits for interviewing. "But not this year," says a sales clerk in the Lotte Department Store in Seoul. "They come, check prices and leave without buying." Hyundai and Kia report that consumer purchases of popular and pricey recreational vehicles is down by about 15% in September from a year earlier. On the other hand, the sale of Daewoo's 800-cc Matiz minicar is up 32% in September — frugal consumers, at least, are buying.

Many Koreans have come to blame the government in general and President Kim Dae Jung in particular for their unhappiness. Critics say Kim has been so focused on relations with North Korea and lofty dreams of eventual reunification that he has neglected the nitty-gritty of economic performance. But the criticisms have started to go beyond that. "People in general are feeling that the government is not able to manage the economy properly and this has created a sense of crisis," says Park Jin, a research professor in political science at Yonsei University.

The government's response has been to staunchly deny any problem: "The economic fundamentals are excellent," newly installed Minister of Finance and Economy Jin Nyum told the press Aug. 8. He has since retreated from that see-no-evil attitude, but the government still doesn't instill confidence in a battle-hardened Korean populace. "Back in 1997, the government was saying that economic fundamentals were good," says Park. "But you know what happened. [Accurate] psychological assessment of the mood is very important."

Shin Hoo Shik, Daewoo Securities' chief economist, says the slump may have been overblown a few months ago, but it is all too real now. "The economy has been in a decline after peaking in late 1999 and the consensus is the economy will continue to weaken," he says. "The volatility in the semiconductor market also negatively affects . . . about 15% of Korea's exports."

Kim Dae Jung vows to keep the nation's reform on course. But with economic numbers looking better, many of Korea's biggest corporations have stopped moves to improve efficiency, unwind complex intra-group shareholding relationships, and focus on core businesses. One economist who's been studying South Korea says many chaebol seem to have gotten off track of what's really important. Hilton Root, a former world bank economist and now with the Milken Institute, says the parochial attitude tends to pit one company or region against another. "When people start thinking that way, it may take another crisis before they change," he says. Perish the thought. The shame is that as more time goes by without real reform, the options start to become limited.

Back to the top
Write to Asiaweek at mail@web.asiaweek.com

This edition's table of contents | Asiaweek.com Home

AsiaNow


Quick Scroll: More stories from Asiaweek, TIME and CNN

   LATEST HEADLINES:

WASHINGTON
U.S. secretary of state says China should be 'tolerant'

MANILA
Philippine government denies Estrada's claim to presidency

ALLAHABAD
Faith, madness, magic mix at sacred Hindu festival

COLOMBO
Land mine explosion kills 11 Sri Lankan soldiers

TOKYO
Japan claims StarLink found in U.S. corn sample

BANGKOK
Thai party announces first coalition partner



TIME:

COVER: President Joseph Estrada gives in to the chanting crowds on the streets of Manila and agrees to make room for his Vice President

THAILAND: Twin teenage warriors turn themselves in to Bangkok officials

CHINA: Despite official vilification, hip Chinese dig Lamaist culture

PHOTO ESSAY: Estrada Calls Snap Election

WEB-ONLY INTERVIEW: Jimmy Lai on feeling lucky -- and why he's committed to the island state



ASIAWEEK:

COVER: The DoCoMo generation - Japan's leading mobile phone company goes global

Bandwidth Boom: Racing to wire - how underseas cable systems may yet fall short

TAIWAN: Party intrigues add to Chen Shui-bian's woes

JAPAN: Japan's ruling party crushes a rebel at a cost

SINGAPORE: Singaporeans need to have more babies. But success breeds selfishness


Launch CNN's Desktop Ticker and get the latest news, delivered right on your desktop!

Today on CNN
 Search
  ASIAWEEK'S LATEST
Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

  THIS EDITION
COVER: Japan: A new generation is coming up with individualistic solutions that will ultimately change the nation
Looking Glass: Novelist Murakami Ryu sees a dim future
Transformations: Japan changed before. It can happen again

NATIONS
PHILIPPINES: Is the end coming for President Estrada?
• Juentang money: Estrada defends himself against the claims
Record: The litany of unending controversies
Interview: Accuser Singson tells his side of the story

MYANMAR: Universities are open again, and one academic — former dictator Ne Win's wife — is happy

INDONESIA: The attorney general is not done with Suharto
Population: Family planning is threatened

INSIDE STORY
TIBET: As Tibetan exiles battle for power, Beijing seeks greater control over their homeland
Interview: What the Dalai Lama sees in Tibet's future
Reincarnation: The politics of Buddhism's central mystery
Interview: Tibetan "traitor" Ngabo Ngawang Jigme

ARTS & SCIENCE
People: The naked truth about Taiwan pop star Coco Lee

Art: Thai artist Vasan Sitthiket is rude, crude and proud of it

Health: Rating the top websites on diabetes

Books: Introducing sex by the numbers

BUSINESS
Gloom: Consumers are worried despite Korea's good numbers

Banks: Are Taiwan's financial institutions under threat?

Telecom: Troubles for Malaysia's largest cellphone operator

Investing: The next course for Bangkok's bourse

TECHNOLOGY
Shakeout: Chinese portals merge as dead dotcoms pile up

GigaMedia: A talk with the man who said no to PCCW

Cutting Edge: PC Witch -Head for the Woods, Gamer

EDITORIALS

Taiwan: President Chen needs to build a real coalition

God: Christianity's struggle for China and India

Letters & Comment: Can Asian biotech catch up?

STATISTICS
The Bottom Line: Asiaweek's ranking of world economies

Back to the top   © 2000 Asiaweek. All Rights Reserved.
Terms under which this service is provided to you.
Read our privacy guidelines.