Kim displays fortitude in face of adversity

PUBLISHED : Tuesday, 29 September, 1998, 12:00am
UPDATED : Tuesday, 29 September, 1998, 12:00am

South Korean President Kim Dae-jung is a man who is accustomed to making up his own mind. He went to prison for it back in the 1970s and, having progressed from sentence of death to top job in his country, has an obvious record of knowing how to deal with adversity.

Thus, if he doesn't quite see eye to eye with the International Monetary Fund on how to do things in Korea it is by no means a certain bet that the IMF will win the tussle.

He is, however, much more restrained in how he expresses his disagreements with the IMF than he is in the initiatives he takes as a result of his disagreements. Other Asian leaders would do well to take note.

During a recent interview in which he described some IMF initiatives as being inadequate, he said: 'Especially they wanted too much austerity and too high interest rates. We have recognised this so we are now making adjustments to policy.' Some adjustments. Mr Kim has succeeded in pushing interest rates to new record lows in Korea and so far the IMF has not made even a peep of protest.

The 91-day CD yield has declined to barely over 10 per cent from a peak of nearly 25 per cent in December last year and the benchmark three-year corporate bond yield has followed it all the way down. It was done by making massive amounts of credit available to the banking system through the Bank of Korea.

All this has taken place within a matter of only months since the IMF organised a record US$58 billion rescue package for the Korean economy.

It is highly unusual, to say the least, that the IMF should accede so meekly to a breach of one of its primary conditions for a rescue - higher interest rates - so soon after making that rescue.

Mr Kim can make the case that the Korean economy has already responded well to the medicine administered to it. Inflation has abated and the merchandise trade balance has swung into a surplus of $3.5 billion a month after showing a consistent deficit throughout this decade.

He can also argue, and undoubtedly he has done so, that it hardly makes sense to apply medicine for overheating to an economy which has been chilled down as much as the Korean economy has been.

The latest figures show that gross domestic product contracted by a year-on-year rate of 6.7 per cent in the second quarter with retail sales and industrial production both slumping severely.

It is in fact an argument that applies to the economic troubles of almost all of East Asia at the moment and there is increasing evidence that the IMF is beginning to recognise it.

What Mr Kim has done, however, is to show other Asian leaders how to bring the IMF to this recognition by making it a fait accompli and doing it so modestly and quietly as to draw almost no attention to it. If such ways are learned in adversity then adversity is certainly the best school for politicians.

But it still takes the chill-resistant attributes of a brass monkey to push interest rates down to record lows during an IMF work-out and call it an 'adjustment'.