South Korean President Chun Doo Hwan's decisive action in handling the loan scandal that has rocked his government appears to have swept away any immediate serious challenge to his two-year-old rule, although public trust, which has been shaken badly by the affair, is apt to be difficult to restore.
According to political analysts and diplomatic sources in Seoul, Chun's rapid-fire reshuffling of Cabinet and government party posts late last week has helped quiet the issue. But it has not, they said, put to rest rampant rumors of influence-peddling and bribery in high political circles and backroom financial peccadilloes among Chun's family relations.
The scandal broke two weeks ago with a disclosure by public prosecutors of a multimillion-dollar loan swindle allegedly perpetrated by a relative of Chun's wife that came amid two major corporate bankruptcies and the collapse of South Korea's vast unofficial loan market. It has led to the arrests of 19 persons, including an influential uncle of the first lady and a cast of prominent bankers, company executives and money brokers.
Although a government probe into the affair failed to satisfy key figures in the country's opposition political parties and its tightly controlled press, prosecutors said they had found no evidence linking leaders of Chun's ruling Democratic Justice Party to the affair. There was no evidence that any of Chun's 22 Cabinet officers had been involved, but they decided to step down en masse to accept moral responsibility.
Chun replaced 11 ministers Friday and forced the resignations of six government party executives, including his close political ally, party secretary general Kwun Jung Dal, who had been implicated in the scandal.
Prosecutors said Kwun had been cleared of suspicions of any involvement. Barring any further embarrassing disclosures, Chun's action was likely to blunt effectively calls for more thorough public investigations, analysts here said.
"Chun took a bold set of political measures and, tactically, he has gotten over the immediate hurdle," one diplomatic source said, "although in the longer term, he may have been pretty seriously wounded."
Formally elected president in March 1981, Chun has staked a substantial portion of his public reputation on a pledge to stamp out the corruption that is said to have flourished under his predecessor, Park Chung Hee. Chun came to power two years ago in a military-backed takeover amid the chaos touched off by Park's assassination in October 1979.
"There is a cumulative sense that Chun is not providing effective government," a diplomatic source said. "The scandal strikes at the base of his anticorruption platform" and in the face of his appeals to the South Korean public to be frugal and hard-working, he said.
Chun's self-styled image of a moral force in Korean politics, knowledgeable South Korean observers said, has been badly tarnished by the political tempest, which began with the arrest of former national assemblyman Lee Chul Hee and his wife, Chang Yong Ja, earlier this month.
They are charged with defrauding six Korean companies in a string of questionable private loan deals and commercial paper transactions which, prosecutors said, ultimately brought them $270 million.
Chang, who is related to Chun's wife by marriage, allegedly paid Lee Kyu Kwan $142,000 in bribes and passed on the deed to a $350,000 house for his help in arranging government approval for a banking venture being promoted by her husband. Lee, an uncle of the South Korean first lady, was arrested last Tuesday shortly after he stepped down as president of the Korean Mining Promotion Corp.
In 1980, Chun appointed Lee to head the influential government-run company, which is charged with parcelling out official funds to subsidize the modernization of South Korea's mining industry. Lee's wife reportedly was convicted on charges of involvement in another shady financial deal in the mid-1970s.
No one has suggested that Chun had even an indirect role in, or any knowledge of, the financial affairs of his wife's relatives. In the background, however, is the accepted view here that family ties in South Korea are often important steppingstones to wealth and influence.
In an apparent bid to cut any further adverse publicity from such associations, Chun has removed members of his family from delicate public posts.
The staggering sums involved in the loan scam have churned up strong emotions here following reports of Chang Yong Ja's financial escapades, which have dominated the South Korean news media.
Prosecutors said that nearly $1 billion worth of promissory notes passed through her hands since 1979, although she is believed to have netted only about one quarter of the amount.
"Everyone here suspects that there must have been hidden hands manipulating the curb money queen," as Chang is known, said one reliable Korean source, and many people remain skeptical of the government's handling of the case.
"People are disappointed but, at the same time, they don't want a return to the political and economic instability" that opened the way for Chun's rise to power two years ago, this source added. Another sudden change of government, observers here said anxiously, could usher in more unrest.
Chun has retained the support of South Korea's powerful military, political analysts said. And, until recent weeks, he had achieved an increasing measure of public support and confidence by demonstrating an ability to restore political order and get the growth of the country's economy back on track.
Inflation, for example, now stands at a yearly rate of about 6 percent after running at close to 40 percent in 1980. The sudden collapse of the curb money market, however, has dealt a serious blow to those efforts, economic analysts said.
"Government efforts to lure moneylenders back into the unofficial market will be important," said one diplomatic source, "because an economic downturn could create a climate of unrest in which antigovernment activities might get more sympathy from the public than could have been expected just a couple of months ago."
"The majority of the people believe Chun was not directly responsible for the scandal and don't want him to step down," one South Korean observer said. The lingering question, he suggested, was one of the effectiveness of Chun's administration and his retinue of close political advisers.