(EDITORIAL from the Korea Times on April 15)

Urgent Surgical Operation
Bold Restructuring of Ailing Firms Is Best Stimulus

Even as some U.S. officials expressed cautious optimism about the economy, others
are driving General Motors toward a "surgical" bankruptcy. Similar things should
happen in Korea, too.
Encouraged by some positive signs, including soaring stock markets, a
strengthening currency and eased money flow, expectations are rising about a
premature recovery. A Bloomberg columnist's favorable comment that "good news
springs up in Korea" might have buoyed up such a mood further.
But now is the time to remain calm and do what's needed most ??? a painful
surgical excision of ailing industries. So our expectations are rather directed
toward the creditor bank-led restructuring of 45 conglomerates starting later
this month.
One must not expect too much of the domestic banks, however, as shown by their
poor track record in the similar restructuring of the construction and
shipbuilding sectors recently. They should not repeat this nominal restructuring
to avoid the short-term burdens of taking over bad assets. The long-term result
of their failure to do so could be fatal blows to the entire economy.
It's like what one sees in some horror movies, in which a group of zombies
attacks normal people to turn everyone else into the walking dead. Firms with
extremely poor financial health hurt their lenders, other businesses and then
pull down the entire economy along with them, which is what happened here 12
years ago. Even now, about 130 listed companies should be called "corporate
zombies," unable to repay interest on their debts with the profits they make.
Korea's big businesses neglected corporate restructuring during the booming years
of the 1980s. And if the luster of the semiconductor boom had blinded business
executives and economic policymakers to make reasonable judgments in 1997, a
similar danger is lurking in foreign exchange rate-aided export now. Some
conglomerates have recently repeated the same mistake of more than a decade ago,
bent on only expanding corporate size amid aggravated profitability and financial
structures. Except for the five largest conglomerates ??? the Samsung, Hyundai
Motor, LG, SK and POSCO groups ??? most others have one problem or another.
So the creditor banks and financial regulators need to be sterner than ever in
diagnosing their financial health and prescribing remedies to make them focus on
selected core units. It can hardly be denied that some government officials'
confusion between investment in productive activities and equity investment for
expanding corporate scale has contributed to these larger but shakier
conglomerates. It is regretful in this regard that the government is still
gripped with a mistaken notion that their lifting of chaebol's equity-ceiling
would be of help for the national economy.
Again, what matters is not how big the businesses are but how solid and focused
they are. If the government, financial institutions and the businesses themselves
learn some lessons and awaken from the deception of bubble growth, the ongoing
crisis could turn into opportunities for them.
Economic recovery depends on the sentiment of various economic players, including
businesses and consumers. The government's role is to restore their confidence by
removing economic uncertainty. And the best way to do this is harsh corporate
reform.
If they fail to do so, Korea's economy might lapse back into a crisis, regardless
of the global economy. A second reading of the Bloomberg column shows how
perilously close Korea went to the brink only several months ago.
(END)