Lawmaker: Bank Consolidation Imprudent

The government should take a hands off approach toward economic indicators to allow them to so better reflect the situation in the real economy, a ruling party lawmaker said.

If the government insists that corporate and financial restructuring must be implemented without increasing the number of unemployed, the credit crunch the nation is experiencing will persist, according a report released by Rep. Kim Min-seok of the Millennium Democratic Party. The government is calling for banks to consolidate to enhance international competitiveness. But if these new super banks face insolvency, another financial crisis could result.

In view of the loose state of local bank regulations and the government's plans to further open the economy, any financial institution, no matter how strong, could become financially strapped in the event of a misstep, Mr. Kim added.

Diversifying the structure of the financial industry is essential to properly manage economic risk, he concluded.

Mr. Kim suggested that the financial indexes, including interest rates, stock prices and foreign exchange rates, be free of government intervention so that they better reflect the actual economic situation.

The government should refrain from keeping interest rates low through artificial means, so that market liquidity, currently stuck in the banking industry, flows into the corporate bond and commercial paper market, Mr. Kim added. The system for liquidating non-viable firms needs to be improved so that money can be channeled into industries with high growth potential, he stressed.

by Kim Kwang-ki