Steel Giant’s Collapse Shakes S. Korea Leader

SEOUL — South Korean President Kim Young Sam, already shaken by a protracted labor crisis, Monday ordered an all-out investigation into the collapse of this nation’s second-largest steelmaker as he sought to contain a situation that is spiraling into his administration’s most spectacular financial scandal.

In one of the largest bankruptcies in South Korean history, Hanbo Iron & Steel Co. declared bankruptcy last week amid revelations that it inexplicably had been granted about $5.8 billion in loans--20 times its net worth--over the last five years.

The bankruptcy at Hanbo, the flagship company of the nation’s 14th-largest business conglomerate, could cost jobs among the firm’s 250,000 employees and suppliers, raise steel prices and put a chill on investment by other wary conglomerates, said Lee Dae Chang of the Kia Economic Research Institute.

But the scandal’s potential political effects are equally serious: The probe could raise the curtain on the seamy side of South Korea’s finance industry and its collusive ties with political influence-peddlers.

Public prosecutors have launched an investigation into opposition charges that bankers were pressured by members of Kim’s ruling New Korea Party--and possibly his own son--into making the astronomical loans.

Among other things, investigators will focus on whether kickbacks or political contributions were granted in exchange for the loans to Hanbo, whose offices, state radio reported early today, were raided by South Korean police.

The ruling party Monday bowed to opposition demands to convene an extraordinary National Assembly session on the unfolding scandal as early as this week.

Parliament must also grapple with rewriting controversial revisions to the labor and national security laws, which were rammed through during a semi-secret session last month and set off nationwide strikes that cost the economy $3 billion.

But for now, the Hanbo debacle is commanding the spotlight of Korean political theater, rocking the nation with yet another burgeoning scandal.

In 1995, prosecutors discovered that former presidents Chun Doo Hwan and Roh Tae Woo had amassed a $653-million slush fund--some of it “forced donations” from business tycoons and some of it payoffs for government favors.

“This is the worst corruption scandal of the Kim Young Sam administration,” said the two major opposition parties in a joint statement. “Without illegal political intervention, it would have been impossible for Hanbo to obtain such a huge amount of bank loans.”

Kim Dae Jung, the president’s fiery political nemesis who heads the opposition National Congress for New Politics, said Kim should be investigated amid suspicions that the Hanbo group may have bankrolled the ruling party’s election campaign in April.

The Korean media have quoted unnamed bankers as complaining that they were forced to make the loans and reported that both Hanbo executives and finance bureaucrats directed them toward Kim’s White House when asked to explain the preferential loans.

In reports Monday, most major newspapers--including the Chosun and Joong Ang dailies--for the first time named Kim Hyon Chol, President Kim’s son, as one of the prime suspects behind the loans, stemming from a friendship with Hanbo’s chairman, Chung Bo Keun.

Kim Hyon Chol--in an interview Monday with the Joong Ang--denied the allegations, saying he met Chung only once briefly, and threatened to sue his accusers.

“I can swear with confidence that President Kim, his family members and those in his inner circle have nothing to do with the Hanbo case,” Lee Won Jong, senior presidential political secretary, told the Korean media.

Another spokesman said Kim had ordered a thorough investigation “so as not to leave a speck of suspicion.”

The case will test Kim’s mettle as an anti-corruption crusader, an image on which he has based his presidential legacy. Although Kim has jailed more than 1,000 officials and promulgated tough financial disclosure laws in a sweeping crackdown on corruption in the past four years, charges have grown that he selectively targets his rivals while ignoring his allies.

The Joong Ang daily reported Monday that 95% of 1,200 people surveyed suspected that political favoritism was behind the loans to Hanbo; 61.8% of those asked did not believe the administration’s denials of involvement. But less than half of the respondents believed the probe should be extended to Kim or his economic officials.

In 1991, the Hanbo group was embroiled in a scandal involving kickbacks to lawmakers and an aide to then-President Roh Tae Woo in exchange for winning a housing project contract.

Analysts questioned why the group received permission to build a steel mill in 1994--a venture that owner Chung dreamed would boost Hanbo into becoming Korea’s 10th-largest conglomerate--even as the far more powerful Hyundai group was denied government approval to construct such a facility.

Other unanswered questions include why the 18 banks that provided Hanbo’s financing apparently violated lending limit rules without intervention from bank regulators and why the group was allowed to take over Youone Construction Corp. in 1995 at a time when it was squeezed for cash for its steel mill construction.

Hanbo is expected to be placed in court receivership and managed by Pohang Iron & Steel Co., Korea’s largest steelmaker, until the courts, creditors and regulators can sort out the mess.