Police raided the offices of the Hanbo Group five days after its steel- making subsidiary went bankrupt with some 5,000 billion won (pounds 3.7bn) of debts. They removed papers belonging to its founder, Chung Tae Soo, and the governmentbanned 17 individuals connected with the case from travelling overseas, including the heads of four banks which had lent money to Hanbo Steel.
In an acknowledgement ofKorea's domestic problems, the President cancelled his trip to Poland, Turkey, Italy and Hungary, scheduled for the beginning of next month. A spokesman said: "President Kim has decided that March is not a good time to visit foreign countries when considering the national situation."
At the core of the Hanbo affair is the question of how the steel company managed to obtain such huge loans - vastly in excess of its net worth. Korean banks, which have often yielded to political pressure, appear to have broken their own rules, exciting suspicions that they did so under orders from the government. Despite denials and a lack of hard evidence, the opposition has eagerly stoked speculation that these orders came from powerful positions in the government.
Corruption has long been apart of Korean politics, with ruling politicians granting loans and concessions to businessmen in return for huge paybacks. As the first non-military president, Kim made the eradication of corruption a goal of his administration - last year, he astonished Koreans by prosecuting his two military predecessors, Chun Doo Hwan and Roh Tae Woo, presently serving sentences of 17 years and life respectively.
So far, the opposition has come up with no evidence to back up the rumours it has been stoking, which are strenuously denied by the government. But suspicions have been sharpened by the mysterious history of Mr Chung, the Hanbo founder.
There were questions in the late 1980s about the source of his capital, and he has received suspended sentences for twobribery convictions. A court last year concluded that he paid a further 15 billion won (pounds 11.1m) to President Roh, but acquitted him on the grounds that it was extracted under pressure.
President Kim's enemies point out that he came to power in 1992 as a member of Roh's party, and speak of unnamed figures in his New Korea Party (NKP), including afamily member, who "sponsored" Hanbo. The NKP denies everything; even the opposition was indicating that it expected the government to shrug off the latest allegations. "Like many other prosecution probes in the past," said a National Congress for New Politics statement, "this one will end up diminishing or covering up the facts".
Expecting a fair inquiry, according to the United Liberal Democrat Party, "is like expecting an elephant to pass through the eye of a needle".
The illegal Korean Confederation of Trade Unions, which led nation-wide stoppages against a controversial labour law, announced yesterday that it was calling off its weekly strike. It promised to call a nationwide general strike if the government fails to repeal the law by the middle of next month.