Korean Situation after IMF Bail-out
(15 October 1998)
Won-bo, Lee
Director of Korea Labour & Society Institute

1. Relative Stability of Foreign Currency and Finance Market

• Increase of foreign currency holdings.
• Maintaining the black of current account because of the decrease of import and long-term loan, and increase of foreigners' direct investment.
• Stable exchange rate
• Decreasing interest rate
• Stable consumer price

[Table1] Main Index of Korean Economy in 1998 (In terms of improvement)

• Minus of economic growth rate(first experience since 1980, -2.8%)
• Rapid decline of production growth rate
• The lowest rate of manufacturing operation
• Extremely tied up plant & equipment investment
• Inactive domestic consumption and deterioration of managerial index caused by wage cut and massive layoff
• Rapid decline of export since August
• Rapid increase of unemployment rate

 

[Table2] Main Index of Korean Economy in 1998(in terms of instability)

1) Deterioration of Employment Situation

• Decrease of economically active population
• Decline of economic activity rate
• 5.4% of the employed decreased compared to one year ago
• Unemployment rate: 7.6%(July 1998)- the highest rate since July 1982.

[Table 3] Recent Employment Index

2) Structural Change of Labor Market

• 8.2% of wage workers decreased in 2/4 quarter of 1998 compared to earlier year and full-timer reached 3/4 of reduced employee.
• Reduced number of employees reached 856,000 of which manufacturing sector occupied 55.1% and other sectors did 40.1%
• 13.8% of Employee (from 15 to 29years old) decreased compared to earlier year.

4. Government Policy of Restructuring

1) Rapid Propulsion of Flexible Labor Market

• Korea has the most flexible labor market in the OECD countries because of the rapid growth of irregular workers, employers' unilateral layoff, expansion of worker dispatch system.
• The government passed the labor law including the article of introduction of massive layoff and workers dispatch system in February 1998 'for the purpose of overcoming economic crisis'.

2) Rapid Market Opening

• In May 1998, government opened 1,135 industries among all 1,148 industries to foreign investor and market opening rate reached 98.8%

3) Restructuring in Finance Industry Sector

• In June 1998, government withdrew 5 banks among 25, and propelled M&A between banks and sale for foreign investor.
• Government withdrew 4 insurance companies among 50, 17 merchant banks among 30, 5 lease company among 25, 12 credit unions among 1,653.
• Government unilaterally ordered banks to reduce 40% of employees for productivity increase.
• Although the restructuring in finance sector focused on massive redundancy and wage cut, the government unilaterally propelled its restructuring policy without consultation or agreement with trade unions and is therefore faced with strong resistance of unions.

4) Restructuring in Public Sector

• In public sector, Korean government has 108 investing and financing enterprises, 58 financing research agencies, 49 finance supporting agencies, 490 central and local government owned-agencies.
• The government has strongly propelled to privatize public enterprises and sell them to foreign investors in the name of efficiency and competitiveness.
• The main contents of privatization policy consist of sale of public enterprises and government owned-stocks, M&A between agencies that have similar functions, and reduction of employees and budgets.
• The government policy of restructuring on public sector ignored the public interest and focused on profitability and efficiency. This policy deepens monopolization of Chaebols and strengthens the domination of foreign capital in Korean economy and is facing with the strong resistance from labor because the government excluded labor in the process of restructuring.

5) Restructuring in Private Sector

• The government demanded Korean conglomerates, Chaebols to reform their economic governance system which resulted in the current economic crisis, to secure the managerial transparency, and to rationalize their affiliates, which is called 'Big Deal' for competitiveness
• Chaebols are strongly resisting the government restructuring policy and are trying to change it in quality in order to maintain their economic power.
• Some chaebols increased their affiliates. For example, in car industry Samsung and Hyundai and Daewoo are contending in taking over Kia motors.

6) Unemployment Policy

• According to the KCTU, number of the real unemployed including the discouraged unemployed, family workers and daily construction workers reached 3,650,000 and, if workers who work less than 17 hours weekly is added, 5,000,000.
• The unemployed is rapidly increasing in manufacturing and construction sector.
• Rapid increase of the unemployed resulted from restructuring, inactive recruitment caused by economic recession and deterioration of enterprise management, and restructuring in public sector. This will result in serious social problem because of the absence of social safety net.
• Only 4% of all the workers can receive unemployment benefits secured by unemployment insurance law. After October the government set up a plan to include all the workers in unemployment insurance net but will suffer from financial lack.
• Government budget for unemployment policy was assigned 7,600 billion won (1US$=1300 won) in 1998 and 8,600 billion won in 1999. But government didn't suggest the long-term and fundamental unemployment policy.

5. Response of Trade Union Movement

1) Labor Policy of Government and Capitalists

• Government policy to attract trade unions through tripartite commission.
• Employers' demand of wage cut, wage freeze and redundancy.
• Employers' unilateral break of collective bargaining and unfair labor practice.
• Strong suppression of government against workers' resistance: number of workers under restraint is more than that of former government.

2) Living Conditions of Workers

• Both of nominal wage and real wage decreased due to wage cut or wage freeze and price increase.
• 12 % decrease of real wage in first half of 1998 compared to earlier year.
• Most of labor welfare condition was destroyed.

3) Situation of Trade Unions

[Table 4] Trend of Union Density

• Rejection of layoff, security of employment and socio-economic transformation were adopted as basic goals in 1998.
• Institutional participation in making policy and decision such as tripartite agreement.
• Struggle against massive layoff, unfair labor practice, deteriorating working condition (KCTU organized two general strikes which mobilized 230,000 workers).
• Strong resistance against layoff (ex : Hyundai Motors, Mando Machinery).
• Efforts to overcome enterprise-level union system through entrusting bargaining right to industrial federation .
• Unification of labor movement and building industrial union system.
• Construction of progressive party (until May 1999).