SEOUL: Despite World Bank emergency grants and IMF rescue funding of $57 billion, Korea's economy, the world's 11th largest, remains on the brink of collapse. If a debt moratorium or default can be avoided, however, Korea's state-led capitalism may yet be transformed into something like market-led capitalism, one more competitive in -- and open to -- global markets.
The politics of this transition, however, will be harshly uncertain. Kim Dae Jung (the new president) was elected with a mere 40.3% of the vote, his opponents maintain a majority in parliament, and an angry tide of populism is rising. Far from over, Korea's crisis is shifting ground.
The Korean state's inability to supervise and manage the impact of financial globalization, made worse not better since the civilian Kim Young Sam assumed power in 1993, is the direct cause of crisis. Until that year, South Korea seemed a model "developmental state." Like Japan, Korea was characterized by close government-business relations, conglomerates (known here as chaebols), a weak labor movement, and mercantilist industrial and trade policies, with foreign exchange and domestic credit allocated by the state.
One irony of Korea's crisis is that a source of failure, the chaebols, were authorized decades ago to create companies capable of competing in global markets. By fostering ceaseless collusion between politicians and businessmen – the former providing favors to the chaebols, the latter providing political funds to the rulers – within this national objective lay the seeds of today's crisis. The vast sums accumulated by former presidents Chun Doo Hwan (who amassed a $900 million slush fund) and Roh Dae Woo (who amassed $600 million from the business community) were but the tip of an iceberg of corruption and inefficiency that saturated both politics and the economy.