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NEWS ANALYSIS : S. Korean President Silences Skeptics With Reform Decree : Asia: Kim Young Sam surprises nation by acting quickly to outlaw financial transactions using false names.

August 21, 1993|SAM JAMESON | TIMES STAFF WRITER

SEOUL — Since his inauguration in February, President Kim Young Sam has attracted widespread acclaim for political reforms, but doubts had begun to arise about his commitment to economic change.

Now, Kim has raised his credibility among the skeptics.

Without warning, Kim earlier this month issued a decree outlawing financial transactions using false names or aliases--a practice that over 30 years had built up a tax haven for the rich and a sanctuary for political slush funds.

Oh Jung Nam, a planning director at the Economic Planning Board, estimated the size of the "underground economy" at $33 billion, or about a tenth of the Korean economy and a third of the currency in circulation. Now, it is to be brought under the scrutiny of tax officials for the first time.

By mid-October the owners of as many as 11 million bank and stock accounts and other financial instruments registered in a false name must declare their true identities. Failure to meet the deadline will subject the funds to a 60% penalty tax.

Both of Kim's predecessors dating to 1980 pledged to carry out the reform but failed to do so. And Kim, after taking office, had said only that he would implement it some time during his five-year term.

Kim, a former opposition leader who joined the government party in 1990, said the move will bring "economic justice" to South Korea. He called it the most important of all his reforms.

"An economic coup d'etat " was the description Kim Do Kyoung of the Lucky-Goldstar Research Institute gave it.

Despite the likelihood that the reform will ultimately give South Korea a modern, efficient financial system, the short-term impact promised more trouble for an economy that, to South Koreans, is still in stagnation.

Gross national product growth of 3.3% in the first three months of this year rose to 4% between April and June but remained far below the government's estimate for the year of 6%. Exports are rising steadily, but consumption and investment at home remain disappointing.

Immediately after Kim implemented the reform, private research institutes lowered estimates for annual growth by between 0.2% and 0.6%. Overnight, the unofficial "curb market" of private lenders dried up, threatening to deprive thousands of small businesses that lack collateral to borrow from banks the funds they need for daily operations.

But for the long run, the step resuscitated credibility in Kim's promises to carry out other economic reforms.

Kim inherited the mantle of a government that in the last three decades made "unrelenting efforts to guide and control the economy," as the government's Economic Planning Board now admits. Parallel with democratic reforms, Kim adopted a five-year plan to create "a new economy" to turn over the economic lead to private business, abolish "unnecessary" regulations, end protectionism and promote competition.

In an Assembly session that will begin in September, about 260 reform bills are to be enacted. And in one of the most surprising moves to promote competition, Kim's government announced that it will gradually lift bans over the next five years on the imports of 268 Japanese products, including cars. Japan is South Korea's most direct competitor.

Oh, the economic planner, predicted that the degree of openness in South Korea's economy at the end of Kim's term in February, 1998, should "reach the level of the Japan economy today."

Lucky-Goldstar's Kim agreed that South Korea's market remains far more closed than Japan's. Competition with Japanese products--not market barriers--is what makes it difficult to sell in Japan, he said. "In South Korea, you will find popular movements against 'conspicuous consumption' of 'luxurious' foreign goods. You won't find that in Japan," he said.

He predicted that South Korea's market under President Kim would be opened to the level of that of the European Community.

Yet one highly placed Korean official, who asked not to be named, said President Kim's interest in reforms remains focused on political--not economic--impact. Neither the president nor his Cabinet ministers embrace any philosophical commitment to an economy free of government control, the official said.

A retired Korean diplomat agreed that more openness is likely. "But outside pressure (from the United States) will still be needed to produce it."

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