By Mary Jordan
Washington Post Foreign Service
Thursday, May 28, 1998; Page A28

SEOUL, May 27—Defying government threats of arrest, tens of thousands of workers walked off the job today in the latest display of nationwide labor unrest that threatens to plunge South Korea into a new financial crisis.

Union leaders said today's national work stoppage -- the first since the economy went into a tailspin last year -- would be followed by another on Thursday, and they vowed the walkouts would continue until the government halts layoffs. An average of 8,000 people are losing their jobs daily, raising the unemployment rate to 6.7 percent -- nearly triple the level of a year ago.

"I have almost no money left; I haven't been paid in four months, and it is getting very difficult for me," said Yoon Chang Shik, a union organizer who stood onstage in front of 2,000 chanting union workers at Seoul Station, a main traffic hub.

Hundreds of riot police with shields and steel helmets watched as the protesters, some in suits and ties, sat on the pavement under the hot sun, raising their fists and shouting, "No more mass layoffs!"

As the government had warned, the defiant labor action sent the value of the won, the South Korean currency, dropping sharply against the dollar. The Korea Stock Exchange composite index recovered slightly today, apparently because there were no reports of violence between police and protesters, but the market is in a precariously weak state. It has fallen 12 percent this week to an 11-year low.

Government officials who on Tuesday were taking a hard line against the job action, calling it illegal and threatening arrests, changed tactics today. Apparently realizing that public sentiment was against the militant Korean Confederation of Trade Unions, which organized the work stoppage, the government decided not to confront protesters or provoke violence after the union broke off talks. One official said the government is seeking to contain the financial damage that the labor unrest is inflicting on foreign investors.

South Korea received a second jolt today with the news that the Japanese yen had fallen sharply against the dollar. Japan and South Korea export many of the same products, including cars, ships and electronics, and as the Japanese goods become cheaper, South Korea fears its key avenue to recovery -- exports -- is being blocked.

"On the financial and on the labor side, there are factors that could unravel things into another round of crisis," said Bill Michels, managing partner for North Asia with Booz-Allen & Hamilton Inc., Tokyo, an international management and technology consulting firm that has done extensive research on the ailing South Korean economy.

A growing number of analysts worry that foreigners' reluctance to invest here, in part out of a fear of potentially disastrous labor turmoil, and the slow overhaul of inefficient practices by family-run conglomerates could sink South Korea into fresh economic chaos. The country nearly went bankrupt in December as the won plummeted to nearly 2,000 to the dollar after hovering around 900 for most of 1997. The currency traded today at just over 1,400 to the dollar.

Today's job action included tens of thousands of auto workers who brought plants in the southern city of Ulsan to a halt. The Korean Confederation of Trade Unions estimated that 120,000 union workers walked off the job today, a number the government said was highly inflated.

Protesters said they are not asking for a new government, and support for newly elected President Kim Dae Jung -- a longtime labor advocate -- remains high. But they want the government to take what Kim Dong Hyen, a securities firm employee, called "a new direction." Such a direction would break with the austerity policies dictated by the International Monetary Fund in exchange for its $57 billion bailout of the South Korean economy in December.

To secure IMF funds, the government agreed to overhaul its financial and business sectors. Layoffs were a key factor in saving companies from bankruptcy once government subsidies were withdrawn and bad loans suspended. Laws that essentially had set up a lifetime employment system in the public sector were amended. To add to the workers' troubles, the country has a paper-thin social safety net -- another key reason laborers marched and chanted in the streets today.

"I like President Kim, but the government has to provide more unemployment benefits," said carpenter Lee Han Jin, 44. He said he has not worked in months and has gone through his savings, and he is angry that the companies' wealthy owners are not sharing workers' pain.

U.S. Ambassador Stephen Bosworth said in an interview last week that public support for aggressive labor tactics is limited because most people understand that layoffs are necessary to restructure, and ultimately revive, the economy. "There is general awareness that widespread public unrest will hurt Korea's image abroad and will retard the recovery," Bosworth said.

Nonetheless, concern is growing here that there is a limit to the patience of South Koreans at large as many find it increasingly difficult to make ends meet.