By Sandra Sugawara
Washington Post Foreign Service
Tuesday, February 24, 1998; Page A15

SEOUL—President-elect Kim Dae Jung surveyed the 25 American, European and Japanese executives sitting before him last month in a conference room in the posh Shilla Hotel and told them something many thought they would never hear from a South Korean leader.

They were, after all, warriors of many battles with the country known as Korea Inc., where cozy ties between government and Korean conglomerates had kept the juicy markets out of foreign companies' reach. Previous presidents would never even have met with them.

Speaking for 35 minutes and referring only to a half-page of scribbled notes, Kim, the former dissident-cum-populist politician who takes over as South Korea's president Wednesday, promised the Seoul-based foreign executives that things here would change. Discrimination against foreign companies would end, as would collusion between government and South Korean conglomerates, known as chaebols.

"It's a drastic change from the past and a step in the right direction," said Duck Y. Song, the Korean American president of Philip Morris Korea Inc.

"Kim Dae Jung hit on all the key things that have to happen to turn the situation around in Korea," said Tucker M. Kokjohn, president of DuPont Korea Inc.

In a floundering Asia, struggling with its worst economic crisis in years and desperately searching for strong leadership, Kim has emerged as a surprisingly aggressive force for economic reform. Unlike President Suharto of Indonesia -- whose reluctance to enact painful reforms set out by the International Monetary Fund has sent Indonesia's economy reeling and foreign investors fleeing -- Kim is doing the IMF one better.

Since his election in December, Kim already has pushed a series of bills through the legislature and adopted rules that further open the Seoul stock market to foreign investors, encourage foreign mergers and acquisitions, make it easier to lay off workers, and force the conglomerates to use internationally accepted accounting practices and to begin reducing their debt loads.

Ten weak merchant banks also have been shut down. The right of minority shareholders to bring lawsuits has been expanded. Kim also has proposed privatizing such state-run companies as Pohang Iron & Steel Co. Ltd. and allowing private competition against state utilities.

At the same time, Kim took on the politically perilous task of embracing the conditions for the $57 billion IMF bailout in front of a skeptical and angry public, which last December viewed the IMF and U.S. policymakers as economic colonialists.

He has also met privately with the likes of global money manager George Soros and media mogul Rupert Murdoch in his attempt to attract more foreign investment. "He's been crusading his commitment to sweeping economic reforms to all potential international investor groups," Song said. "He's been the country's number one salesman ever since he got himself elected."

One result of Kim's economic zeal: Standard & Poor's Corp. recently raised South Korea's long-term credit rating, citing government progress on economic reforms. The change is expected to make it easier for South Korea to raise money on the international bond market.

But unlike pre-crisis times -- when feverish foreign investors were eager for any piece of the South Korean market at any price -- foreign money won't flow to the world's 11-largest economy without solid progress on promised reforms. Both South Korea's currency, the won, and the nation's stock market lost more than half their value in last fall's turmoil, and investors are now gun-shy.

The IMF's $57 billion bailout and the private-sector restructuring of $24 billion in short-term debt owed to foreign banks have helped pull the nation from the brink of economic collapse, but Kim still has a tough job ahead to attract hard-currency investment. And time is short, analysts say.

For South Korea, this year is expected to be far more difficult than last year, according to private economists' projections. With interest rates soaring above 20 percent, tens of thousands of bankruptcies are looming, including those of perhaps three or four conglomerates. Up to a million workers are expected to lose their jobs. The banking system is still struggling under a mountain of bad loans, which may grow to $51 billion this year, according to Richard Samuelson of SBC Warburg Dillon Read in Seoul.

"This year will be a watershed year for Korea," one foreign banker said. "You may see enormous changes in the business structure here." There is also the potential for tremendous social unrest, which could stop further reforms if new jobs are not created as old ones disappear.

Kim's free-market embrace has surprised many foreign businessmen here who recall the Kim of last fall. While stumping for the presidency, Kim vowed he would force the IMF to reopen negotiations because the deal signed by his predecessor was too tough on Korea. Although they knew Kim had few allegiances to the powerful, family-run conglomerates, foreign executives feared he lacked a sophisticated understanding of Korea's economic plight and that his close ties to labor would be a major obstacle to significant reforms.

The president-elect's abrupt shifting of gears generated sharp criticisms initially. Some Korean news commentators wondered why Soros, the currency speculator whom many Asians blame for the region's troubles, should get such special treatment. Some labor union members have said they feel bitterly betrayed by Kim's turnaround on the need for layoffs. And the conglomerates have complained about Kim's pressure to reform.

But with the South Korean currency having risen 15 percent in value since bottoming out in December and the stock market 50 percent higher than at December's low point, Kim's critics today are quiet.

Milton Kim, president of SsangYong Investment & Securities Co., a unit of the SsangYong conglomerate that his family controls, said he believes Kim Dae Jung is making the right moves. Conglomerate leaders "are wasting their time" by complaining, he said. "They should be focusing on their own restructuring. We're moving toward a market-based economy."

Breaking up the cozy relationship among conglomerates and between them and the government is at the heart of Kim Dae Jung's reform plan. It is a risky strategy. Milton Kim said most conglomerate leaders are "generally nervous" about being forced to change. Another Korean businessman said, "A better word is 'stunned.' "

Conglomerates are at the center of the South Korean economy, controlling much of its wealth and holding much of its debts. Their leaders are used to making deals and getting loans based on family relationships, friendships, and school and regional ties. Conglomerate families often shunned heavy equity financing for fear of losing family control of their sprawling businesses, which often extend into such diverse industries as semiconductors, cars, steel and construction. Debts sometimes soared past 600 times equity.

Kim has asked conglomerate families to voluntarily use a chunk of their personal fortunes to reduce their corporate debts, a symbolic gesture to labor unions who demand that the rich owners must share the pain.

Chul Jung Kim, executive director of Doosan group, one of the few conglomerates that began restructuring long before the current economic crisis, said, "I believe the direction of these changes is right."

But he voiced a concern raised by many other conglomerates, that the pace of reform is too fast. "These are new concepts," Chul Jung Kim said. Many conglomerates have complex business structures, he explained. "I think the rapid timing of these changes can be a problem."

With the threat of transparent balance sheets looming, South Korean companies are searching for new cash sources. One investment banker said conglomerates have started seeking alliances with foreigners they used to shun.

Samsung said it is talking to Ford Motor Co. about an equity investment in its car company, and to Intel Corp. about cooperating in its semiconductor business. Daewoo Motor Co. has been in discussions with General Motors Corp. Food giant Daesang Group has said it wants to sell as much as one-third of its business to foreigners. The Doosan group sold its bottling plants to Coca-Cola Co. in November, and the SsangYong group sold its papermaking business to Procter & Gamble Co.

You Jong Keun, a key economic adviser to Kim, said he believes conglomerates will undergo some significant changes. "This is going to be a make-or-break issue, as far as this administration is concerned," You said. "We aren't going to let anybody get in the way of reform, because the success or failure of Kim Dae Jung's presidency, and of the whole nation, depends on reform."