We Must Listen Attentively to the Warning from Moody's

Moody's has warned that the attempt at Korean economic restructuring will be seen as purely for show - and could lead to a revival of the recent crisis - if financial instability is not fundamentally tackled. President Kim Dae-jung, anxious about their remarks, has ordered drastic changes to related governmental agencies. Warnings about the status of our economy have been given by many Korean economic researchers, but have caused relatively little concern compared to this caution from Moody's.

In spite of the apparently bright situation of the Korean economy over the past two years, the three biggest credit analyzers in the world including Moody's have refused to make an upward credit adjustment. The warning from Moody's has been received as a confirmation of international distrust of Korea.

Moody's remarks contain three points of great interest. Firstly, that our restructuring does not have "heads and tails." They said bad banks and companies have not been consistently sloughed off. Even the government seeks to lay the blame on other insolvent enterprises. Perceived responsibility for insolvent operations was passed to secondary monetary circles, back to the banks, and finally was placed in the laps of the people. The origins of our financial instability - such as the Daewoo crisis - still haven't been challenged.

The second point is the hidden sickness in the second monetary circle, such as commercial stock trading companies. Even the government seems unaware of their deep-rooted problems. If the market mirrors optimistic government estimates of the scale of the bad money problem, instability will persist.

The third problem is that the chaebol (conglomerates) reduced their debt ratio merely with capital increases to branch companies, the help of a recovering Korean economy and low interest rates. Moody's points out failings by the chaebol in improving administrative structure and polishing their public images. Even without those problems, our economy contains stagnating stock markets, aggravated international payments and quarrels between labor forces and management. If our economy again undergoes depression, we will be unable to counter these ticking bombs.

Actually, Moody's warning could work negatively. It could be used as a plausible argument for the radicalists who suggest a quick revolution. But, to win an opportunity to rebuild world confidence, we have to reassess the process of economic restructuring and come up with a clear and public restructuring schedule.

by Kim Jin-kook