PUSAN, South Korea — The collapse of South Korea's giant Kukje group has seriously hurt this huge port city, causing major problems for hundreds of Pusan companies.
Businessmen here said many financial transactions have been frozen and anti-government sentiment in the city has grown since the failure of the Kukje group last February.
Pusan, at the southeastern tip of the Korean peninsula, is the nation's second-biggest city and largest port with a population of 3.5 million. It handles over 90% of the country's containerized exports.
The Pusan-based Kukje group, the country's sixth-largest conglomerate with 20 subsidiaries, played a vital role in the community by employing more than 20,000 workers and maintaining business links with more than 800 local companies.
But it ran into difficulties because of a drop in overseas footwear sales and Middle East construction contracts and was forced to sell major subsidiaries and hand over management of others.
"If the loss of liquidity continues one or two more months, I think there will be wholesale bankruptcies of small Pusan companies," said Cho Hung-lae, General Manger of Hanshin Company, one of 821 Kukje subcontractors.
The Finance Ministry has instructed banks to offer all possible assistance to Pusan companies facing liquidity problems. The creditors said the sales of the Kukje subsidiaries are being smoothly arranged.
But Lee Ki-taek, vice president of the main opposition New Korea Democratic Party and one of six party parliamentarians recently elected from Pusan, told Reuters the collapse of Kukje had had a disastrous effect on Pusan.
"In economic terms, Pusan is turning into ruins," Lee said.
Hardest hit by the failure are footwear manufacturers, which account for about 30% of Pusan's total employment and exports.
Largest Shoe Factory
Kukje was operating one of the world's largest shoe factories and some 300 companies were providing parts and finished shoe products to the company.
Alarmed by the announcement of the Kukje breakup, moneylenders stopped discounting promissory notes issued by the firm, making many footwear manufacturers unable to secure funds for daily operations.
Lamenting the government's decision to allow creditors to break up Kukje, Pusan politicians and businessmen said they thought the effect would be political as well as economical.
"The timing couldn't have been worse," a Pusan businessman said.
He pointed out that the government move came after national elections in which the newly-formed Democratic Party, backed by dissident leaders Kim Dae-jung and Kim Young-sam, defeated President Chun Doo Hwan's ruling party by a wide margin in Pusan.
Several Pusan citizens questioned by Reuters said they felt it unfair that a Pusan-based conglomerate should become what they called the first victim of the government's new policy of getting tough with the big groups.
A Pusan banker, who asked not to be identified, said that although Kukje had heavy debts, the financial situation of other Korean conglomerates was similar.