Foreign Affairs: A The paranoid regime in North Korea can try the patience of even the most coolheaded politicians. But Kim recognizes that the ideological war is over, and believes that now is the time to draw the North out of its isolation. Seoul has lifted some bans on business contacts with the North and is promoting cultural exchanges. Kim has also reaffirmed Seoul’s commitment to pay 70 percent of a $4.6 billion nuclear-reactor project in the North, replacing Pyongyang’s suspected nuclear-weapons program. Last Friday, Kim told journalists that Seoul would even support Washington if it ““reduces or lifts its sanctions’’ against Pyongyang. ““We have no reason to fear North Korea,’’ he said.
Chaebol Reform: C Kim has promised to reform the vast, highly leveraged, family-run conglomerates that dominate South Korea’s economy. But the chaebol have resisted political pressure before. Now Kim is changing laws to force retrenchment and transparency. New regulations require the chaebol to cut their debts by more than half by the end of next year and ban chaebol subsidiaries from guaranteeing each other’s loans –a tactic used in the past to pursue reckless expansion. Skeptics wonder how hard Kim will enforce the rules. ““We have seen a lot of announcements by Kim, but no implementation,’’ says Del Ricks, head of research at ABN AMRO Asia’s Seoul office.
Financial Reform: B Kim has lifted key restrictions on foreign-exchange transactions and the purchase of Korean stocks, bonds and property by foreigners. Even hostile takeovers by foreign companies are allowed. Now the focus is on cleaning up large commercial banks saddled with at least $70 billion in bad loans. But analysts worry that Kim has no coherent plan to reform the banks.
Labor Reform: B A longtime advocate of labor rights, Kim was able to convince militant union leaders that they had to make sacrifices. Historic talks in February among labor, management and government officials led to changes in South Korean law, legalizing layoffs at troubled companies for the first time. ““Kim achieved something conservative leaders could never achieve,’’ says Moon Jung In, a political scientist at Seoul’s Yonsei University. Yet Korea lacks a developed social safety net, and the surging ranks of the unemployed are soon to exceed 2 million. Workers rioted in Seoul on May Day, giving investors jitters.
Government Reform: D Kim may represent dramatic change, but the old guard still lives to thwart him. Even Kim’s coalition partners include conservatives who favor strict bureaucratic control. The Ministry of Finance and Economy has changed its Korean name slightly, but not its mind-set. Its bureaucrats have dragged their feet on downsizing state enterprises, where many of the executives are former civil servants.
Overall, Kim gets an A for effort. After all, his coalition has a minority of seats in Parliament. A political realignment may follow last week’s local elections. Kim’s coalition won 10 out of 16 mayoral or gubernatorial contests. Kim now hopes to use that victory to induce opposition lawmakers to join his camp in the Parliament; he needs 15 additional seats to gain a majority of the 292-seat assembly. In the short term, at least, getting the political math right might be his most important test.
