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The government is prodding banks and companies that are less reform minded to start using the same menu. It has forced tough new regulations to curb the excessive lending that helped push the economy to the edge of collapse, shut down deadbeat firms, and opened the clubby world of finance to overseas ownership (foreigners now own about 58% of the Housing & Commercial Bank).
The dramatic reforms have helped spark recovery sooner than most experts expected. The government predicts that growth in South Korea will bounce back to an annual rate of 2% by the second half of this year; by contrast, the economy shrank 5.9% in 1998. "There is no country in the OECD that has made such rapid changes," says Donald Johnston, secretary-general of the Organization for Economic Cooperation and Development. "Historians may look back and say this crisis has left a healthy legacy."
Yet it also promises to be a painful one in a country where everybody from workers to executives took job security for granted. President Kim's policies are pushing up unemployment, at least for the short term. The government prediction of 9% unemployment this year is stunning in a country used to levels closer to 2%. Kim Jung Mi, 30, was fired without notice last June from her sales job at a small Seoul bookstore. In a country where women occupy few positions in the top levels of business, they are often the first to get the ax when restructuring starts. As a never married mother, Kim had a tough life; her conservative family shunned her when she decided to keep her child seven years ago. But nothing had prepared her for the sudden dismissal. "I felt so betrayed," she says.
Kim stopped eating and slipped into a depression. A friend had to care for her son. Eventually friends found her a psychiatrist willing to provide free therapy and medication. Since January she has been working as a clerk in a government-sponsored public works program, which pays for food and the tiny, unheated basement apartment she moved into after being laid off. But Kim doesn't know what she and her son will do when the money from her subsidized program runs out.
The crisis has brought anguish for countless others as well. Suicide, alcoholism, divorce and crime have jumped nationwide in the past year. Shelters for out-of-work businessmen have sprouted in Seoul and other cities. In a country in which corporations traditionally provided the welfare system, the government is trying to build a social safety net from scratch. This year spending on job training and support for the unemployed is expected to rise 39.8% and 34.8%, to $1 billion and $5 billion, respectively. But it is not clear how long the government can contain the resentment of those who don't have the skills to "shift gears." South Korea's cantankerous unions kept a lid on protests last year, fearful of a backlash from the public. But in February they showed their patience was wearing thin when they walked out of a three-party committee--representing labor, government and companies--set up last year to navigate the crisis. The muscle flexing remains low key for now, but if Seoul doesn't get the message, the unions promise to escalate their confrontation with government.