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<= Kookmin Bank's HQ stands empty Friday morning

More than 16,000 workers at two of South Korea's largest banks began an indefinite strike on Friday to protest against the merger of the two lenders.
The managements of the Kookmin Bank and Housing and Commercial Bank (HCB) had announced that they would join together to form a new superbank.

But unions have argued that the move will lead to mass job losses.

The dispute got so bitter that earlier this month, Kookmin Bank's president Kim Sang-Hoon was held prisoner for nearly 24 hours in his office by angry union members.

We will not stand down until the merger plan is completely abandoned

Nam Sung-Sam, union leader

The South Korean authorities have vowed to come down hard on banking and telecoms workers who are striking to protest at the country's economically harsh restructuring plans.

Labour unrest

The strike of more than 16,000 banking workers adds to the labour unrest currently gripping the country.

Earlier this week, thousands of workers at South Korea's largest telephone operator, Korea Telecom, went on strike in protest at planned job cuts.

The telecommunications union called the industrial action after the management rejected its demand to delay a privatisation plan which would cause significant layoffs.

But the government's threats to arrest six Korea Telecom union leaders have done nothing to bring to an end the five-day-old strike, aimed at halting its plans to privatise the telecoms firm.

Bank restructuring

The merger of the two banks will create South Korea's largest retail bank, with assets of more than 157,000 billion won ($133bn).

The government has pushed for mergers among banks in an attempt to restructure the debt-ridden financial sector.

Its shock treatment consisted of declaring six banks insolvent and ordering them to write off their capital.

The markets remained calm despite the protests

This was followed by a capital injection of 7,100 billion won ($5.8bn) and an effort to push through bank mergers, or to group debt-stricken banks into financial holding firms.

Minority shareholders, who had previously been given government guarantees that this would not happen, reacted with outrage.

An embarrassed finance minister, Jin Nyum, appeared on national television to apologise for the government's decision to renege on its promise, saying it had to be done to avoid a meltdown of South Korean banking.

Economic difficulties

The South Korean economy can hardly stay afloat without external assistance.

The investment bank Goldman Sachs recently downgraded the country's economic growth forecast from 5.5% to 4% for 2001.

Is this the beginning of a replay of the 1997-98 crisis? Hardly. The downturn under way is best characterised as a more traditional cyclical downswing, following a vigorous post-crisis boom

Jiwon Lim
JP Morgan
Rising unemployment could push the jobless figure over a million in February this year, according to predictions by the country's official statistics experts.

World prices for South Korea's main exports, semi-conductors, are depressed.

And high oil prices have pushed up the country's imports bill.

The weak economic performance in South Korea is causing widespread concern across the region because international observers see it as a barometer of Asia's economic performance.

Return from the abyss

In 1997, the South Korean economy was close to taking its last breath.

A kiss of life was delivered by the International Monetary Fund, in the form of a $58bn bailout package and a three-year reform programme.

But the reforms were only partially completed, and pushing through the rest is proving very difficult.

Even the country's own finance minister is pessimistic Jin Nyum recently cautioned that another meltdown is possible.

Optimistic economists

But fortunately for the South Korean people, most international economists are less pessimistic than Mr Nyum.

"Is this the beginning of a replay of the 1997-98 crisis? Hardly. The downturn under way is best characterised as a more traditional cyclical downswing, following a vigorous post-crisis boom," said Jiwon Lim, a Seoul-based economist with the investment bank JP Morgan.

"Foreign exchange reserves exceed $92bn, and [South] Korea is still racking up monthly surpluses of $1bn - $1.5bn on the trade account," said Goldman Sachs economist Sun-Bae Kim.

Bank lending to the private sector is rising and this should lead to a revival of the country's investment-led growth, economists predict.