Wanted Kim Woo Choong disappeared from South Korea three years ago as his company was collapsing under a $65 billion pile of debt. Now, in an exclusive interview, the former Daewoo chairman talks about his rise and fall--and his life in exile.
By Louis Kraar

(FORTUNE Magazine) – Kim Woo Choong, long Korea's most respected tycoon and lately its most famous fugitive, appears smaller than life. Once a commanding figure in a smart business suit, the founder and former chairman of Daewoo is slumped on a couch at a remote country house, a frail old man in loose cotton trousers and bare feet. Shrunken by illness--he has lost four inches from his waistline since disappearing from public view more than three years ago--Kim, 66, chain-smokes Marlboro Lights, flashes a weary smile, and speaks in a hesitant voice. But when he begins talking about his shattered global conglomerate, he is transformed into a chief executive in exile.

Since vanishing in 1999, as his companies were collapsing under $65 billion in debt--one of the largest bankruptcies ever--Kim has kept resolutely silent. A wanted man, Kim has been vilified by former employees and branded a criminal by a judge in Seoul. Through it all, he hasn't responded. Until now. Over the course of four meetings in a country in Southeast Asia that he requested not be named, Kim told FORTUNE a tale of political intrigue and management errors behind the death of Daewoo. And he took responsibility for his share of fatal misjudgments. "My big mistake was being too ambitious, especially in autos," Kim says. "I tried to do too much too fast."

To his anger and dismay, Kim has become a criminal suspect. Korean prosecutors have accused him of masterminding the biggest accounting fraud in history, surpassing WorldCom and Enron, as well as embezzling $2 billion. He has not been indicted on those or any other charges. "They're trying to make me look like a cheater," says Kim, who professes to abhor luxury. "I never even dreamed of being corrupt." But he admits to "window dressing" Daewoo's balance sheet--a euphemism for accounting tricks. This was a common Korean practice at the time, he says, which involved shifting assets at puffed-up prices between companies in a group. "It's not a big thing," Kim says. Still, some 20 Daewoo executives and accountants were convicted of fraud in 2001 and served six months in jail for inflating company assets by $30 billion in 1997 and 1998. (Kim's attorney says the correct total is $12 billion.)

Perhaps Kim's most stunning claim is that he left Korea not to escape prosecution but at the urging of its highest government officials. As he tells it, Korean President Kim Dae Jung and senior aides persuaded him to get out of the way of a debt restructuring in 1999 by promising that he wouldn't face criminal charges for Daewoo's demise and that he could come back and run the auto company. "The President told me directly by phone before the workout to go away for a short period," Kim says. President Kim, whose term ends Feb. 25, declines to either confirm or deny the former Daewoo chairman's account.

The fall of chairman Kim is not only a personal drama but also a tale about the demise of Korea Inc., the cozy business-government partnership that lifted South Korea from poverty to an industrial power in one generation. Under that arrangement, the government ensured Kim got as much credit as he wished. He aggressively pushed into emerging markets like Uzbekistan to become the world's best-known Korean businessman. Taking daring risks, such as building railway lines in Iran in the middle of its war with Iraq, he personified the popular Korean notion that incessant revenue growth was a patriotic duty. Never mind immediate profits--most Koreans believed companies like Daewoo were too big to fail. The Asian financial crisis that hit Korea in 1997 swept away those attitudes as well as Kim's dreams. The government, which had backed his grand design to become a major international automaker, cut his access to financing. "The government," Kim says, "changed all the rules."

In fact, it was the game that changed. The system that encouraged Kim to expand too fast, that papered over his bad business decisions with loans, that tolerated his creative accounting, had crashed. And Kim, savvy and well-connected as he may have been, was caught in the wreckage.

Kim started his business empire in 1967 with $10,000, a small trading firm, and boundless hopes reflected in the name he chose, Daewoo, which means "great universe." He had already learned to live by his wits as a newspaper peddler during the Korean War and had worked his way through Yonsei University, majoring in economics. Relentlessly single-minded, Kim toiled long hours, visiting textile factories at night to give candy to women workers in hopes of speeding completion of Daewoo's orders. By the 1970s, Kim was knocking on doors of New York City garment buyers. His first big break came at home from Korean President Park Chung Hee, who ruled autocratically for 16 years and expanded the economy by backing favored businessmen. Park, a former student of Kim's father's, handed Daewoo a state-owned heavy-machinery manufacturer in 1976 that had lost money for 37 years. By living in that factory, sleeping on a cot in his office, Kim shaped up its workforce and made a profit within a year. With government approval, he went on to take over and turn around a shipyard, an automaker, and other ailing manufacturers. Preferential loans to exporters also helped Daewoo become Korea's third-largest chaebol, or conglomerate (after Samsung and Hyundai).

Kim built Daewoo's international business by cultivating close relationships with political leaders from France to Pakistan. He boldly entered Third World markets that Western rivals considered too risky--"Higher risks mean greater returns," he once said. In 1989 he spread his own legend of hard work and self-sacrifice as author of It's a Big World and There's Lots to Be Done, which sold two million copies at home and was later published in 21 other languages. Combining morality lessons and practical business advice, Kim's book is filled with aphorisms like "Losing your reputation is social death." (His U.S. publisher commissioned this reporter, who has interviewed Kim periodically over the past 20 years, to write an introduction.) Ultimately Daewoo employed 320,000 people in 110 countries and produced autos, televisions, pianos, aerospace components, grapes for French wine, and practically everything else except significant profits. Even in good years profit margins were rice-paper thin. In 1998, the year before creditors dismantled Daewoo, its 12 core companies lost $458 million on revenues of $51 billion.

Kim in effect bet--and lost--his entire conglomerate on attempting to become a global force in the auto industry. His strategy, as he describes it, sounds logical. Daewoo aimed to enter emerging markets with long-term growth potential and relatively few competitors. So Kim built a dozen offshore auto plants in such places as Poland, Ukraine, Iran, Vietnam, and India. He negotiated deals that appeared to dilute Daewoo's risks. The Uzbekistan government, for example, agreed to foot half the cost of a $650 million auto venture and offered a route into the Russian market. His plan was to make two million cars, half of them outside Korea, by the year 2000. By 1999 he had already reached 1.6 million. The strategy seemed to be working.

But European and U.S. rivals accused Kim of reckless expansion. As Lou Hughes, president of international operations at General Motors, put it during the height of Kim's deal-making in 1996, "Daewoo is a very disruptive force and will do anything it takes to create markets."

The Asian financial crisis struck just as his auto production scheme went into high gear and long before the new plants could be profitable. Kim had borrowed about $20 billion to finance his global expansion. "I tried to do in five years what usually took ten to 15 years," he says. "This was my mistake. To gain economies of scale, we made investments without the markets' being there and then had to find ways to sell the cars."

For a while Kim thought he had a secret weapon to save Daewoo--selling at least half of the auto company to General Motors for $7 billion to $10 billion. "With that one shot we could have settled our loan payments," he says. The two companies, which had been joint venture partners in Korea until Daewoo ended the arrangement in 1992, began talking about remarriage in April 1997, months before the financial crisis. They signed a preliminary agreement in February 1998, and Kim expected to close the sale later that year. But they could never agree on a price. "One reason for the big difference of valuations between the two companies was hidden losses on the balance sheet of Daewoo Motor," says Lee Hun Jae, a former deputy premier of Korea. (After Kim's disappearance, GM offered $5 billion for Daewoo Motor, but it lost a government bidding contest. Ford, the winner, later backed out. Early last year GM wound up buying part of the company's assets in Korea for $400 million.)

As Daewoo began crumbling, Kim expected a rescue from the Korean government. Like the chairmen of other Korean conglomerates, he knew how to work his country's political system. He had contributed more than $30 million to former President Roh Tae Woo, whose fat political slush fund created a scandal in the mid-1990s in which Kim and eight other business leaders were convicted of bribery. In 1996 he and the other CEOs received suspended sentences from an appellate court, which ruled that businessmen shouldn't be blamed for acting in their companies' interests. Kim stayed on good terms with whoever was in power. The Daewoo chairman even supported the election campaign of Kim Dae Jung, a former political prisoner and reformer who took office in 1998.

The two Kims enjoyed a close relationship. Early in the new administration chairman Kim handed the President a plan for Korea to export its way out of economic crisis by generating a $50 billion current-account surplus. But President Kim's advisors, who had delivered a much lower estimate of export potential, grew irritated. "Daewoo wanted government support to overcome its problems," says former deputy premier Lee. "But under international trade agreements we couldn't give preferential treatment for exports." Kim says his plan aimed to revive the national economy, not just Daewoo.

His clashes with government bureaucrats escalated into shouting matches at monthly meetings called by the President. During those daylong sessions chairman Kim repeatedly assailed officials for ignoring what he considered practical economic realities. "I knew better than anybody else what was going on," Kim says. "They blamed everything on overborrowing by companies. This was a financial crisis, not an industrial crisis. In this emergency we needed short-term government help."

Even more disturbing to the government, Daewoo resisted orders to slash debts, sell off assets, and adopt Western accounting standards. Caught in his own global ambitions, Kim says he found it impossible to cut back. "I could not sell assets, because most of ours were outside Korea," he says. "The big ones were joint ventures with foreign governments, so we couldn't just walk away. The projects were too far along to stop but not yet profitable, so automatically our debt was increasing."

Managing all that debt proved Kim's undoing. "All the world's financial institutions were asking us to pay," he says, "but there was no way." In a desperate effort to stay afloat, Daewoo flooded the market with bonds and commercial paper (some with effective interest rates of 30%), piling up $13.5 billion of new short-term debt in 1998 alone. Finally the Korean government halted the blizzard of IOUs.

The strain of trying to hold Daewoo together exacted a toll on Kim. In November 1998 he collapsed in Seoul and underwent an emergency operation for a brain aneurysm. Ignoring his doctor's advice to avoid flying, Kim went to Hanoi a month after leaving the hospital to meet the Korean President. Over breakfast at the Daewoo Hotel he appealed anew for the release of previously committed loans, but officials continued to block them.

The following summer Kim signed over what he says were most of his personal assets as a guarantee to Korean creditors--nearly $1 billion in company stock and real estate. Key government officials began pushing for Kim's ouster. The government's Financial Supervisory Commission (the banking and securities regulator) publicly warned of possible civil and criminal action. Standard & Poor's downgraded Daewoo's credit rating to junk bond status. Chairman Kim got the message. "If I disappear," he told several associates, "Daewoo will be fine."

Things got so bad Kim apparently considered committing suicide in July 1999, according to Seok Jin Kang, Kim's attorney, who visited him at a hotel near London's Heathrow airport and came away fearing the chairman might take his own life. Kim would not confirm his lawyer's account, saying only, "I was just very disappointed with the way I had been treated."

On Aug. 26 the government took control of Daewoo's debts--an indirect form of nationalization that would lead to the breakup of the conglomerate. In effect Korean officials decided that Kim had become a political and economic liability. "Kim was a visionary, a wonderful salesman but a poor financial controller," says Jeffrey D. Jones, an attorney in Seoul who has represented international creditors of Daewoo. "The extent of Daewoo's fraud went beyond being socially acceptable."

While visiting China for the opening of three auto component plants in October 1999, Kim decided to quit both Daewoo and Korea. He never went home. In November, Kim sent an emotional farewell message to his employees, saying that Daewoo's troubles left him "feeling pains with my entire body" and acknowledging that he had managed the crisis "in an unacceptable manner." That was his last public statement. Exhausted and depressed, he checked into a hospital in Germany for treatment of a heart ailment and the aftereffects of an operation for stomach cancer. He says he cut off all contact with Korea for a year, not reading newspapers or even talking to his wife, Ahija, who continued to manage her real estate business from Seoul. "I just wanted to forget everything," Kim says.

Kim and his wife traveled in Spain and Italy at the end of 2000, then spent the first half of 2001 in Sudan as guests of strongman ruler Omar Hassan Ahmed al Bashir. In recent months Kim has been dividing his time between Asia and Europe. He lives more like a political exile than a criminal on the run. Under Korean law Kim cannot be indicted without returning to his country, a move he says government officials still privately discourage. Last year Seoul asked Interpol, the international police liaison agency, to look for Kim, but evidently no one is looking very hard. Interpol mentioned an arrest warrant for Kim in a press release in April 2001, but it declines comment beyond suggesting a look at its website--which carries no wanted notice for Kim. He travels freely on his Korean passport. Old friends whom he has visited in Paris, Khartoum, and Bangkok still address him as "Chairman Kim." China and Vietnam treat him as an honored government guest. "Thinking about the recent past really upsets me, so I keep busy," Kim says. He is working on his memoirs and playing golf for the first time. He earns a living, he says, as an advisor to a French engineering company.

Kim still stirs controversy at home. In 2001, when Korean creditors discovered Daewoo's British Finance Center, which handled bank accounts in London, prosecutors portrayed it as Kim's $20 billion slush fund. They told the press he skimmed $2 billion for personal use. BFC never appeared on company balance sheets. Daewoo managers made it look worse, saying "we imagine" that an unexplained $753 million was spent on interest payments. But an audit by Korea's Financial Supervisory Commission confirmed that those offshore accounts were used solely to service international loans and make legitimate investments. The supposed $20 billion slush fund turned out to be the sum that went in and out of the accounts over 19 years. The auditors reported no evidence of embezzlement.

Nonetheless, the Seoul district court depicted Kim (who wasn't a defendant) as the main culprit when it convicted other Daewoo executives in 2001 of accounting fraud, hiding money abroad, and foreign-exchange-law violations. In his decision, senior judge Jang Hae Chang said the case "involved economic crimes" committed by Kim and his managers "under the excuse of following old practices." The judge added that "their wrongdoings caused huge damage to the Korean economy."

Kim's best hope for returning home and restoring his reputation would be an official pardon. But first he would have to face court proceedings in Seoul. President Kim has the authority to pardon the former Daewoo chairman but is politically hobbled by a series of influence-peddling scandals involving close aides and two of his sons. President-elect Roh Moo Hyun, who vows to push harder to reform the chaebol, seems even more unlikely to show mercy. Still, some Koreans are making the case for forgiving Kim in light of his role in industrializing Korea. Says Kim Byong Kuk, an economist and a columnist for the Korea Times: "The real culprits of Daewoo's financial debacle were those concerned government bureaucrats who mismanaged the Korean economy to the brink of catastrophe."

Brooding about what was and what might have been often keeps Kim awake nights. During bouts of insomnia he plays an electronic version of go, a strategy game, on a Sony notebook computer. Most of all he wants his reputation back. "People will understand, in maybe a maximum of five years, that I am not wrong," he says. "Time solves everything."

But time is also working against Kim. He helped build the modern Korean economy, working so diligently and dreaming so big that he became a cult figure. Now the state-guided capitalism under which he thrived is gone. And Kim, who never fully realized that the old system was doomed, has proved unable to adapt to Korea's new rules.