'IMF stole soul from Korean economy'

Shin Jang-sup of "Dialogue with Kim Woo-choong — The World Is Still Wide and There Are Many Things to Do" talks to The Korea Times in an interview at his office in Myeong-dong, downtown Seoul, Friday.
/ Korea Times photo by Kim Ji-soo

Prof. Shin talks about hundreds of hours of conversation with defunct Daewoo founder

This is the cover of Shin Jang-sup's "Dialogue with Kim
Woo-choong — The World Is Still Wide and There Are Many
Things to Do," which was released Aug. 26.

By Kim Ji-soo

Fifteen years after Daewoo Group collapsed during the 1997-1998 financial crisis, author Shin Jang-sup says the International Monetary Fund-led restructuring took the heart and soul of the Korean economy.

Shin, who is also a professor at the National University of Singapore, spent hundreds of hours talking with former Daewoo Group Chairman Kim Woo-choong in Hanoi, Vietnam. Kim has been operating the Global Young Business Managers program there since 2012. He recently published excerpts of these conversations in the book, "Dialogue with Kim Woo-choong ― The World Is Still Wide and There Are Many Things to Do," which was released Aug. 26.

Kim, 78, lent support for the book by appearing at the Daewoo Forum, which is a gathering of former Daewoo employees and executives, held Aug. 26.. "I don't want to dwell on the past," Kim was quoted as saying. "I just want to shed light on our history and to verify whether Daewoo's collapse was necessary." Kim opines that Daewoo's collapse cost Korea 30 trillion won. Before it collapsed, Daewoo was the second-biggest conglomerate by assets after Hyundai Group. It had 83 trillion won ($82 billion) in assets and 62 trillion won in annual sales. It ran 41 domestic affiliates and 396 overseas branches.

"His comment was more forceful than expected," said Shin, chuckling, during an interview at his interim office in downtown Seoul. Shin is currently on a sabbatical from the NSU.

Daewoo was dissolved in 1999 under the government-led restructuring program, a consequence of the belief the nation's conglomerates were too big to fail. Shin hopes that with the book, today's press can clarify three facts about Daewoo's collapse in order to determine whether the policymakers at that time had done their job.

The first fact is about why former Financial Services Commission (FSC) Chairman Lee Hun-jai said in his 2012 memoir the deal between Daewoo and General Motors broke down in July 1998, according to Daewoo sources.

"The memorandum of understanding between Daewoo and GM says parties should be promptly notified of the termination of an MOU in writing and in the English language, delivered by hand or by courier in a confidential manner, but Daewoo was never been notified of the termination in this manner," Shin said. Shin suspected that Lee wrote what he wrote in his memoir to defend the policies his agency made with regard to Daewoo Group.

The second fact is that policymakers at that time had said Daewoo Motors lacked the technologies to stand alone and therefore, had to be sold. But GM had sent a letter of intent in December 1999, shortly after the government had announced Daewoo's workout, stating that it would like to acquire Daewoo Motors because of "considerable opportunities for complementarities and synergy." Consequently, Shin wondered how Lee could say Daewoo lacked the technologies when GM wanted to acquire Daewoo because of its technologies for building small cars at competitive prices, especially for the Chinese market. Shin also said it would have been extremely unconventional for GM to have sent the confidential letter of intent to the FSC chairman with the "endorsement of the General Motors Board of Directors," when the sale of Daewoo Motors would be done through an open bidding and should be determined by creditor banks.

e third fact is that Kang Bong-kyun, then-chief Blue House economic adviser, had written in his November 1998 report to then-President Kim Dae-jung that Daewoo's expansion was based on false export orders from overseas markets and consequently, the conglomerate had accumulated 19 trillion won in short-term debt in just nine months. Group Chairman Kim was slated to meet the then-President to ask for help. The chairman said Daewoo had to borrow 16 trillion won because commercial banks stopped export financing and another 3 trillion won worth in an attempt to meet the Bank for International Settlement ratio in order to survive the financial crisis in the first half of 1998.

"If Daewoo was really pushing for exports, then why did the due diligence made after Daewoo's fall show no inventories in Daewoo's overseas subsidiaries?" asked Shin.

After Korea received $58 billion in bailout money from the IMF, the nation's economic team pushed forward an aggressive restructuring of chaebol and financial firms. After initially following an export-led strategy, Daewoo Group made an unsuccessful attempt to reduce its heavy debt by selling assets from late 1998. The group's creditors finished liquidating all of Daewoo's affiliates under a debt-rescheduling program in August 1999.

Shin believes the disagreement between Kim and the chief policymakers, mainly Lee and Kang, over how to surmount the financial crisis eventually led to emotional clashes that were detrimental to Daewoo.

Shin said he also was wary of the strictness of the IMF"s restructuring programs, which had prompted him to first meet with Kim in 2010. The two decided to publish the book in 2012 and from then, on engaged in hundreds of hours of dialogue.

"He is a charismatic person, but he gave me a hard time too," said Shin, chuckling.

Shin said Kim is essentially a problem-solver who relishes challenges.

"Do you know how many Korean firms there are in Vietnam? More than 3,700," Shin said. "When these companies run into a problem, they often rush to Kim for help, which he relishes doing and is proud of," said he added.

Shin said such charisma and drive were the basis of Daewoo's unique and competitive model, the first multinational corporation to come out of a developing country.

"He was a nationalist businessman who engaged in global management," Shin said.

Isn't it contradictory for a global manager to be a nationalist?

"It's possible because Daewoo was born in a developing country," said Shin. Kim pledged to apply Korea's economic model to new markets, which was significant because "the Korean economic model was still new and had relevance for other developing nations," Shin said.

In the book, the author argues that the IMF's strict restructuring program led to the collapse of 14 of the top 30 conglomerates in the country and eventually, to the decline of manufacturing, which was what put Korea on track to becoming an advanced economy.

"After the financial crisis, the Korean economy became determined by short-term funds," said Shin. "For economies like Korea to advance, state banks could provide more long-term financing," said Shin. The government could also offer incentives to private financing that invested long term, he added.

When asked if his espousing of the government's role in the globalized economy was outdated, Shin firmly said "No."

"There has always been a struggle between the free market theory and statism, and this struggle will continue," Shin said.

In response to Shin's book, former economic adviser Kang said Korea was able to "graduate" from the restructuring program in just a year and half. Meanwhile, Sergio Rocha the head of GM Korea, said he would publish his biography 14 years later.