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[NOTEBOOK]Palpable unease at Korean firms

Jan 12,2003
"I know only two of the eight members of the team's economic departments. I have never heard of the others," a minister said, after the list of the members of President-elect Roh Moo-hyun's transition panel was unveiled last month.

In general, the business community is as unfamiliar with the transition team as that minister is. Because Mr. Roh himself has not been a familiar face in the business world, a joke is spreading that four entities will emerge as new powers: Busan Commercial High School, which Mr. Roh graduated from; the Ministry of Maritime Affairs and Fisheries, where he served as minister; the LG business group and Woori Bank, where some of his family members are working.

Nothing irritates Korean businessmen more than the unfamiliar, since they attach great importance to connections. Every firm in Korea is now busy studying Mr. Roh's economic team. Companies are concerned that the transition team is composed of reformists and progressive scholars.

Consider these past remarks by some members of the president-elect's economic team: "Korea's markets have many defects. The jaebeol system is one of the causes. Let's punish the jaebeols that do not give up their dictatorship and control of affiliates." "Letting jaebeols own financial service firms is as good as letting a diabetic patient eat chocolates."

Keeping in mind these worries, the transition team recently said it would not take measures that would be a shock to the market. Mr. Roh himself said, "I will keep economic policy consistent."

As for general principles, Mr. Roh and his transition team say they will lead gradual liberal reforms. But recently revealed details, such as revisions of tax laws to toughen taxation on inheritances and donations and plans to organize a task force to examine the adoption of a system that would allow the forcible separation of financial service units from jaebeols by the court. Those policies do not seem to be very gradual.

It also makes companies uneasy that there are few experts in science, technology and national competitiveness on the transition team. The development of technology, the reinforcement of trade-related diplomacy and the stabilization of relations between labor and management are important issues for Korea's survival in international competition. But it is not clear whether the Roh administration will have insight into those issues, the business world says.

"If the government wants a country for doing business, it should understand what companies want," a company official said. "The new administration should choose a businessman as a cabinet member."

If firms lose confidence, investment will decline, and we have no future. We hope the new government will attach the greatest importance on investment in managing the economy this year.

Historically, investment has been weak in the years when a new administration came into power. In 1993, the first year of the Kim Young-sam administration, investment grew only 0.3 percent. In 1998, the first year of the Kim Dae-jung administration, investment plunged 38 percent, largely because of the foreign exchange crisis. Direct foreign investment in Korea declined 19.4 percent last year, a contraction for the third straight year. And domestic companies are moving their production bases to foreign countries. Domestic and foreign investment this year will be a sign of how well the new administration is managing the economy in its first year.

Of course, companies also should reform themselves. In a recent poll of 200 analysts and fund managers, only 11 percent of those polled said the management of domestic companies was transparent. People are reluctant to invest in stocks because of book cooking and insider trading. Jaebeols should reform themselves for their own survival.


by Min Byong-kwan

* The writer is economic news editor of the JoongAng Ilbo.


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