South Korea strikes spread

The privatisation of Korea Telecom has run into trouble

The South Korean authorities have vowed to come down hard on workers who are striking to protest at the country's economically harsh restructuring plans.

Any violent protesters engaged in damaging or occupying bank facilities and obstructing operations will face immediate arrest at the scene.

Lee Han-Dong
Prime Minister

But their threats to arrest six Korea Telecom union leaders have done nothing to bring to an end the four-day-old strike, aimed at halting the government's plans to privatise the telecoms firm.

Instead, workers in the country's troubled banking sector are gearing up to follow suit in an effort to resist a proposed restructuring that they say will lead to mass job losses.

The authorities' response to plans by 23,000 bank staff to go on an indefinite nationwide strike came from the highest level.

"The second phase of financial restructuring is an unavoidable choice to enhance the banking industry's competitiveness, and will be pushed ahead without delay," prime minister Lee Han-Dong declared on Thursday.

"Any violent protesters engaged in damaging or occupying bank facilities and obstructing operations will face immediate arrest at the scene," he said.

Bank restructuring

The government's shock treatment consisted of declaring six banks insolvent and ordering them to write off their capital.

The markets remained calm despite the protests

This was followed by a capital injection of 7.1 trillion won ($5.8bn) and an effort to push through bank mergers, or to group debt-stricken banks into financial holding firms.

Minority shareholders, who had previously been given government guarantees that this would not happen, reacted with outrage.

An embarrassed finance minister, Jin Nyum, appeared on national television to apologise for the government's decision to renege on its promise, saying it had to be done to avoid a meltdown of South Korean banking.

Economic difficulties

The South Korean economy can hardly stay afloat without external assistance.

The investment bank Goldman Sachs recently downgraded the country's economic growth forecast from 5.5% to 4% for 2001.

Is this the beginning of a replay of the 1997-98 crisis? Hardly. The downturn under way is best characterised as a more traditional cyclical downswing, following a vigorous post-crisis boom

Jiwon Lim
JP Morgan

Rising unemployment could push the jobless figure over a million in February this year, according to predictions by the country's official statistics experts.

World prices for South Korea's main exports, semi-conductors, are depressed.

And high oil prices have pushed up the country's imports bill.

The weak economic performance in South Korea is causing widespread concern across the region because international observers see it as a barometer of Asia's economic performance.

Return from the abyss

In 1997, the South Korean economy was close to take its last breath.

A kiss of life was delivered by the International Monetary Fund, in the form of a $58bn bailout package and a three-year reform programme.

But the reforms were only partially completed, and pushing through the rest is proving very difficult.

Even the country's own finance minister is pessimistic: Jin Nyum recently cautioned that another meltdown is possible.

Optimistic economists

But fortunately for the South Korean people, most international economists are less pessimistic than Nyum.

"Is this the beginning of a replay of the 1997-98 crisis? Hardly. The downturn under way is best characterised as a more traditional cyclical downswing, following a vigorous post-crisis boom," said Jiwon Lim, a Seoul-based economist with the investment bank JP Morgan.

"Foreign exchange reserves exceed $92bn, and [South] Korea is still racking up monthly surpluses of $1bn - $1.5bn on the trade account," said Goldman Sachs economist Sun-Bae Kim.

Bank lending to the private sector is rising and this should lead to a revival of the country's investment-led growth, economists predict.

The Korea Stock Exchange index in Seoul finished down 2.31 points, only 0.5% down, at 511.90 on Thursday as the markets took the turbulence in their strides.