EDITORIAL from the Korea Times on Nov. 18) -- Removing economic tumors: Corporate restructuring should be fair, clear and swift

Now that Korea Inc. has all but escaped from a financial crisis, Seoul is about to treat the economy's most badly affected parts.

This week, the government begins to receive applications for liquidity support
from financially-pinched construction firms and savings banks, which have
combined to emerge as another time bomb in national economy through their
numerous ``project financing'' loans gone sour totaling dozens of billions of
dollars.
At stake is how to "discern gems from pebbles," by discriminating in favor of
viable firms from nonviable ones. One criterion should be whether the builders
are soundly managed firms suffering temporary cash flow problems or are
chronically debt-stricken ones with poor risk management. The "life-or-death"
decision should also be linked to the applicants' self-help efforts by, for
instance, trimming organization, cutting executive pay and selling off assets.
First, the government's ad-hoc restructuring agency ought to make public these
and other principles to prevent controversy over clear criteria and ensure
administrative transparency. Second, it should be fair in implementing the
principles without allowing exceptions on political considerations. Third, the
restructuring process should be made swiftly before the ailments spread to other
parts of the economy.
If Seoul fails to stick to these principles, the whole restructuring effort will
end up as just another huge waste of taxpayer money on prolonging the lives of
marginal firms that should have been let go far earlier, while encouraging only
moral hazard among others.
The Lee Myung-bak administration is especially urged to shake off its temptation
to stimulate the sluggish economy by stoking another construction boom in this
regard.
Three factors will likely deter smooth corporate restructuring; whether the
current Korean economy is strong enough to stand a major surgical operation; how
to repel tenacious lobbying; and what countermeasures are in store for the
resultant mass layoffs.
True, there are some risks in conducting industrial reform, as there are few
overseas helpers for the Korean economy amid the global economic slump.
Considering a cancer does not automatically disappear, however, the earlier the
treatment, the better. With respect to lobbying, the National Assembly should
operate a watchdog on financial authorities' activities. There are reports even
some hire-purchase finance companies affiliated with family-controlled
conglomerates are going all out to get the government's liquidity support.
Most difficult will be how to deal with the newly unemployed, the biggest victims
of the scheduled restructuring. This is why any major restructuring should
accompany the expansion of social safety nets.
Some private economists say Korea has never completely got out of the Asian
financial crisis of a decade ago. One has to look no further than an increasing
number of homeless people wandering around inner cities, dropouts from fierce
competition for survival resulting from bankruptcies and dismissals. The
emergence of the working poor and income polarization are also economic and
social phenomenon that came after the 1997-98 economic crisis.
The Lee administration should follow global trends of extending a helping hand to
these marginalized people by raising taxes, particularly on the wealthy. The
current move toward abolishing the comprehensive real estate tax, however, shows
the government is doing exactly the opposite of most other governments.
(END)