The meltdown of the South Korean car manufacturing giant is still the world's biggest accounting fraud despite the recent revelations regarding Enron and WorldCom
Long before most Americans had ever heard of Enron and years before WorldCom and Global Crossing went bankrupt, there was Daewoo. The South Korean giant's meltdown in the late 1990s is still the world's biggest accounting fraud.
The Daewoo fiasco was back in the news after Korea's best-known fugitive, Kim Woo Choong, gave an interview to Fortune magazine. Daewoo's 66-year-old founder fled Seoul in 1999 as his empire collapsed under $80bn of debt. He was accused of inflating assets by $30bn and embezzling $2bn.
After nearly four years of jet setting around the world and avoiding extradition, what does Kim have to say for himself? Three things, actually. One, 'it is not a big thing' that he engaged in dodgy business practices. Two, he didn't know his conglomerate was in trouble. And three, it is all the government's fault anyway.
It is hard to keep a straight face reading the comments of a man who so obviously takes Korea's 48 million population for fools. Kim makes former Enron chief executive Jeffrey Skilling seem almost believable by comparison. After all, the pair have much in common. Both helped create powerful, wealthy and enviable empires and claimed they didn't know anything when things imploded.
Koreans are captivated by Kim's re-emergence as he attempts to rehabilitate his reputation. Newspapers and television programs can't get enough of the story. And Kim certainly seems to think he can safely return to Seoul soon, especially now Korea's economy is among the world's strongest. 'People will understand, in a maximum of five years, I was not wrong,' Kim told Fortune. 'Time solves everything.'
How wrong you are, Mr Kim. While you were off living the good life in France, Italy, Spain, Sudan and Asia, thousands at Daewoo lost their jobs. It also cost the government 28 trillion won ($23bn) to clean up your mess. Worse, the over-expansion, cartelised practices and debt accumulation of Daewoo and other so-called 'chaebol' had much to do with the economy's meltdown in 1997.
No, Mr Kim, Koreans won't soon forget your role in a financial crisis that set back many families by generations. And therein lies the good news where Kim's recent interview is concerned. It serves as a reminder Korea has come a long way since the dark days of the late 1990s but has a long way to go.
That, in a nutshell, explains why Koreans elected Roh Moo Hyun. Along with his conciliatory approach towards North Korea, voters like that Roh will stick with the chaebol-busting policies of outgoing president Kim Dae Jung. In the past five years, Kim has made great strides in reducing the influence of these giants.
Much more needs to be done, though, to make sure small-to-medium-sized companies that had been neglected for decades thrive. It's here where Roh's economic team will have its work cut out. Kim Dae Jung, who leaves office in February, did lots of the heavy lifting to tame the chaebol. But they are still a formidable force in Asia's fourth largest economy.
These shadowy conglomerates waged a whisper campaign during December's presidential election, labeling Roh anti-business. They wanted a pro-chaebol in the Blue House. Now Roh has won and pledged to increase competition and improve corporate governance, conglomerates are running scared.
Had Roh lost the election, Kim Woo Choong of Daewoo might have had an easier time easing back into corporate Korea. If he returns to his homeland anytime soon, he will have to answer questions about his role in the world's biggest accounting scam. Labour unions associated with Daewoo, for example, are campaigning to have Kim returned to Seoul to face judgement.
Much of the local media coverage has been on Kim's reported assertion that president Kim urged him to flee the country. If true, Kim will have some explaining to do. Kim Woo Choong is denying Fortune's reporting on that issue. President Kim's handlers also deny he told Daewoo's founder to flee. None of this should eclipse the bigger issue of how some people who bear the most blame for Korea's 1997-1998 crisis still don't get it.
Kim didn't bring down Daewoo alone but his Jeffrey Skilling-like claims that he was in the dark are preposterous. He blames Daewoo's troubles on reckless expansion abroad. At its height, Daewoo was in more than 100 countries, including some in Africa, the Middle East and the former Soviet states. Are we to believe he didn't know?
Just as laughable is Kim's claim it was all the government's fault. 'The government changed all the rules,' Kim told Fortune, a reference to Seoul's move to cut Daewoo's access to new financing. Let's remember that incestuous ties among banks, the chaebol and the government allowed conglomerates to thrive. So when Seoul realised this and stopped the flow of easy money, it was responsible for Daewoo's fall? How does that work?
Luckily, Korean leaders are doing exactly what Daewoo's Kim finds so disagreeable. Investors will be better served by Roh's policies than those of the chaebol. Kim can reach out to the Korean public all he wants but they shouldn't buy into his revisionist history.
Bloomberg newsroom, Seoul
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