By Sandra Sugawara
Washington Post Foreign Service
Wednesday, June 10, 1998; Page C13

TOKYO, June 9—South Korea's powerful industrial conglomerates, which have controlled much of the country's wealth for decades, are headed for a showdown with President Kim Dae Jung, who has targeted their money-losing operations for extinction.

The move against the chaebols, as the conglomerates are called, was launched by Kim on the eve of his departure for the United States, where he is trying to drum up support for his economically embattled country.

Many chaebols are near bankruptcy, having over-expanded and over-borrowed during Korea's decades of growth. Now, with the economy in a tailspin, Korea is under pressure from its foreign creditors to take painful steps that include shutting down uncompetitive companies.

Leading resistance to such action is Kim Woo Choong, the globe-trotting founder of Daewoo Group and head of the Federation of Korea Industries, an association of chaebols. Up to now, he and other tycoons have been able to brandish the threat of job losses to head off efforts to dismantle their huge empires.

Kim Pyonsok, a Seoul-based analyst with Hannuri Investment Securities, said a major victory by President Kim's party last week in local elections, which analysts viewed as a referendum on his first 100 days in office, means the government can now move aggressively against the chaebols with more public support.

Last week, the Financial Supervisor Commission, the government agency overseeing the restructuring effort, stunned the business community by rejecting a "hit list" of companies that a bankers committee had said should be liquidated. The list contained no subsidiaries of the Big Five chaebols, which include Daewoo, Hyundai Group and Samsung Group, the commission noted.

The commission told the banks to revise their list, and rumors have been circulating in Seoul this week about which Big Five chaebol subsidiaries will be placed on it. The final "death list," as it has been dubbed by the Seoul press, is to be released by June 20.

At the same time, Korea's Fair Trade Commission is trying to unravel the chaebol accounting system to shed more light on which subsidiaries are insolvent. The FTC has said it would launch investigations into all cross-subsidiary financial transactions conducted by the Big Five chaebols in April and May.

"The latest probe is aimed at the groups' illegal act of funneling funds of blue-chip subsidiaries to keep alive sick sister companies," a FTC spokesman told the Korea Herald.

South Korea's unions, angry about chaebol efforts to lay off workers, have threatened to stage strikes unless owners share more of the pain of restructuring.

Throughout Korea are signs of resentment of the enormous wealth held by a small number of families that founded and continue to control the chaebols. Over the past three decades, the families have used connections with Korea's political leaders to get bank loans, lucrative contracts and other preferential treatment.

On the other hand, many people also take pride in the entrepreneurial skills of Korean businessmen such as Kim Woo Choong, and acknowledge that South Korea's rapid rise in the global economy was due largely to their success.

"We have not yet reached a consensus decision with the government and the Korean people over whether Korea needs these big companies, over whether they should continue," Kim Woo Choong said in Tokyo this week, when asked about the criticism of chaebols. "But personally I think they are really necessary for the country, because of competition in international markets."

Kim Woo Choong started Daewoo in 1968 as a trading company with five employees. In three decades, he expanded it into textiles, shipbuilding, car manufacturing, electronics and aviation. By 1996, his company employed 320,000 people throughout the world and had revenue of $65 billion.

As Korea's economy slipped into crisis last year, chaebol heads ignored advice that they get rid of uncompetitive subsidiaries. That decision has burdened the Korean banking system with a dangerously high level of loans that could go bad, and analysts say that level will only rise unless some of these insolvent operations are closed.

Kim Woo Choong defended the high level of debt in Korean chaebols, saying it was the only way South Korean companies could expand so quickly.

He added that although Westerners criticize the lack of openness at the Korean family-run companies, foreigners must understand that "Koreans have been victims throughout history. So they have developed a philosophy of family first." And he said Korea has a society that "respects patriarchal order."