Analysis: Reform heats debate in S. Korea

SEOUL, Dec. 16 (UPI) -- South Koreans have just a few days to make their minds up about who will become their next president in a tight race between a pro-business advocate and a pro-labor candidate.

The country's 35 million eligible people are to vote Thursday in the election, which will determine the course of the world's 14th largest economy over the next five years. President Kim Dae-jung, who has waged a 5-year-long reform crusade, is to step down in February.

With South Korea's economy showing signs of downturn, the two main contenders are vowing to steer the economy toward higher and stable growth.

Opposition candidate Lee Hoi-chang pledges to ensure the economy grows at an annual rate of 6 percent over the next decade. Roh Moo-hyun of the ruling party goes a step further, promising to attain an annual economic growth rate of 7 percent.

South Korea's economy, which contracted 5.7 percent in 1998 in the wake of the Asian financial crisis, made a remarkable recovery with growth rates of 10.9 percent in 1999 and 8.8 percent in 2000. The economy lost steam last year with a 3.0-percent growth rate as its exports were affected by a global downturn.

The Central Bank of Korea forecasts that economic growth will moderate next year to 5.7 percent after an estimated advance of 6.2 percent in 2002.

As part of efforts to achieve healthy growth rates, Roh says he will follow in Kim's footsteps by launching a second round of a reform campaign further to boost transparency and international confidence in the South Korean economy.

The former human rights and labor lawyer has campaigned for a greater government role to make a fair distribution of wealth, which he says will lead to stable economic growth. Roh, a self-made man born to peasant farmers, is pro-labor and a champion of the underprivileged. He was jailed in 1987 on charges of abetting striking workers.

Lee, 66, standard-bearer for the conservative camp, is advocating free market principles as a way of keeping growth momentum for the economy. A former Supreme Court judge and former prime minister, Lee espouses pro-business and market-oriented policies.

The most outstanding policy debate between the two candidates concerns the chaebol, the country's large family-controlled business conglomerates whose debt-splurging ways were widely blamed for exacerbating the financial crisis in 1997-98. South Korea was compelled to go to the International Monetary Fund in December 1997 for a record $58 billion bailout to avoid a national debt default.

Roh has pledged to overhaul the debt-ridden business empires to downsize them to prevent the recurrence of a second economic crisis. "Korea could face another crisis unless the chaebol are reformed," Roh said in a recent televised debate. "Reform is intended for the chaebol because it will enhance their competitiveness."

The 56-year-old candidate vows to maintain or toughen regulations to ban subsidiaries of conglomerates from cross-funding each other in order to prevent their reckless expansion, and to impose an inheritance tax when company owners transfer their wealth to their descendants.

Roh says he will also limit the "indiscriminate" expansion of conglomerates into such areas as the banking sector and businesses that are the domain of small and medium-sized companies.

He has pledged to introduce class actions suits that will make management and large shareholders responsible for their decisions, in a move to enhance the transparency of business activities.

Lee agrees on the need to reform the chaebol, but offers a careful approach. "We should not dismantle the chaebol, but should clean and re-use them if they are found to be dirty," he said in the debate. Government intervention in business must be eliminated, he insists. He has promised to reduce corporate tax rates and seek other investor-friendly tax changes.

The Kim Dae-jung government has toughened rules on the chaebol since the Daewoo Group, then South Korea's second-largest conglomerate, collapsed in 1999 with huge debts. The rules have barred favorable loans and share purchases among affiliates and other irregular practices favored by the chaebol for decades.

But the government has recently eased some of the regulations as part of efforts to revitalize the sagging economy. Under the measures, conglomerates have been allowed to own up to 10 percent stake in banks.

Lee pledges to take more drastic deregulation measures to sharpen companies' competitiveness. He said he would declare a "war" against government regulations to ensure that the level of liberalization matches what is found in advanced countries.

Lee proposed the buildup of scientific technologies and human resources as two engines for the country's economic growth, promising the expansion of investment in the development of scientific technologies to 7 percent of the gross national product from the current 3 percent.

Roh said he would attain an economic growth rate of 7 percent by creating a business boom in Northeast Asia and harnessing China as a major export market for South Korean goods. He vows to improve economic ties with North Korea in order to turn the Korean peninsula into the business and logistics hub for the Asian-Pacific region.

Lee vows to speed up privatization of the government-owned banks and other troubled public sector companies, including the electricity utility industry and the railway network as part of efforts to encourage a market-driven economy.

But Roh says he will take a cautious approach in the privatization campaign to minimize negative impacts of the policy, such as mass layoffs of workers. He stresses the need for a social safety net more than Lee.

Recent polls showed the election is too close to call. Whoever is elected, South Korea will face an uphill battle to keep the growth momentum in the economy, many economists say. A recent business survey index by the Federation of Korean Industries fell below 100 for the second consecutive month in December, reflecting concerns over the U.S. economy and unease over a possible war in Iraq.

"The nation's economic growth will lose momentum next year due to a contraction in private spending triggered by concerns about mounting household debts," said Kim Choong-soo, president of the Korea Development Institute, the state-run think tank.

The delay in economic recovery of the United States and the European Union, and international oil price hikes are considered the biggest threats to South Korea's economic growth next year, Kim said.