ed Kim only has himself to blame for Daewoo collapse

By Lee Chang-sup

In his memoir published this week, as told through the National University of Singapore economics professor Shin Jang-sup, Daewoo Group founder Kim Woo-choong blamed policymakers for the collapse of the second-largest conglomerate.

His argument is not without basis. Before the conglomerate collapsed in 1999, he had said Korea could achieve a trade surplus of $50 billion a year and repay its $65 billion International Monetary Fund

(IMF)-arranged loan in a few years, on the condition that Daewoo was kept alive.

However, this was not the sole reason the group collapsed. The group could have been saved had he not made several critical mistakes.

First, he underestimated the role of the IMF in Korea’s recovery from the then unprecedented currency crisis. It didn’t occur to him that the IMF would not accept such a proposal. In return for the emergency loans, IMF had asked Korea to keep interest rates high and shut down unprofitable zombie companies. Thus, to avoid the risk of the IMF withdrawing its bailout, the Kim Dae-jung administration decided to save the Korean economy, not conglomerates like Daewoo.

Second, the Daewoo founder was overly confident that President Kim Dae-jung would not let the conglomerate collapse, given that he had allegedly contributed significantly to Kim Dae-jung’s campaign during the 1997 presidential election. In turn, his direct line to the president led him to make a series of other mistakes. For instance, he refused to accept the Kim administration’s ultimatum to sell Daewoo Motors in return for saving the other Daewoo units. He also never delegated authority to his deputies and seldom listened to their suggestions for saving the group.

He also wrongly believed as long as he was the chairman of the Federation of Korean Industries — a chaebol lobby group — the Kim administration would not let his group collapse.

Finally, he refused to heed the advice of the two top economic policymakers at the time — Financial Supervisory Service (FSS) Chairman Lee Hun-jae and chief economic advisor Kang Bong-kyun — and instead accused them of plotting to topple Daewoo, which the policymakers denied. In fact, these policymakers met with Kim several times to persuade him to implement a reform plan to save the group. The founder reluctantly announced the reform plan to please creditors temporarily but eventually decided not to sell any of the Daewoo units, including Daewoo Hilton Hotel, to help repay the group’s debt. Frustrated with the founder’s reluctance to implement the reform plan, FSS Lee issued an ultimatum, saying in meeting with Kim in 1999, “Chairman Kim, please start selling Daewoo to save the group. You must realize that times have changed.” Because of Kim’s refusal of the ultimatum, the government had no choice but to liquidate the group. Chief economic advisor Kang recalled how President Kim had to reluctantly and agonizingly accept Daewoo’s liquidation.

Speculation is rife that Kim seeks to come back and rebuild the Daewoo empire. Rumormongers speculate that he is seeking support from President Park Geun-hye, the daughter of the late President Park Chung-hee, with whom Kim has long ties. In fact, the late Park enabled conglomerates like Daewoo Group to thrive with the help of cheap loans and regulatory support.

Kim, in the twilight of his life, might simply be venting his frustrations, regrets and humiliation regarding his group’s liquidation. However, it was Kim who ultimately led Daewoo to its downfall because of his overconfidence, greed, reliance in crony capitalism, bad judgment, lack of strategy and stubbornness.

He should focus not only on his mistakes. After all, he had made significant contributions to the country, at least before Daewoo’s liquidation. For instance, he helped globalize the economy and improve North-South ties. He had met Kim Il-sung 20 times as a secret envoy for former presidents Roh Tae-woo and Kim Young-sam.

Further, he also needs to worry more about his legal issues. Although he was pardoned in 2008 on his accounting fraud and other charges, he has yet to repay 18 trillion won (about$17.9 billion)

The government used 30 trillion won (about $29.9 billion) in taxpayer money to help pay for Daewoo’s $88 billion debt. The other debt was repaid through the sale of Daewoo subsidiaries.

Before staging a comeback, the founder must return the taxpayer money to the state. Prosecutors could confiscate his hidden assets, just like they did with former President Chun Doo-hwan’s assets, which were kept under his children’s names.

Lee Chang-sup is the Korea Times editor-in-chief and vice president. Contact him at editorial@ktimes.co.kr.