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[EDITORIALS]Good Start: But One Hand Still Tied

May 31,2001
The dispute between the government and private business, which emanated from the business community's request that the government relax restrictions on the ceiling on business conglomerates' equity investment, was settled Thursday, with the government announcing a new plan. The government accepted a large portion of the business community's demands, sharply expanding exceptions to the regulations, in exchange for putting the restrictions into operation next April.

The government lengthened by two years the term for which an investment in restructuring can be recognized as an exception. Investments in social infrastructure would be excluded from a total amount of investments. The government also relaxed restrictions related to finance and taxes, raising the upper limit of conglomerates' payment guarantee for their overseas subsidiaries and expanding exemptions from taxes on investment. The Federation of Korean Industries welcomed the government's response, saying it would help reinforce the business sector's competitiveness, though the business association demanded additional reforms.

We have argued that the government should lift the morale of the business sector to achieve improvements in competitiveness, and we agree that the government's relaxation of restrictions will contribute to revitalizing the business community. But, we suspect that the settlement is no more than a temporary compromise through which the government saves face, and the business sector wins profit. And we are afraid that the dispute over the fundamental problems will break out again at some later time.

The government accepted the business sector's requests in large part, but balked at abolishing the regulation on the ceiling on business conglomerates' equity investment. The question is why the government wants to revive the regulation next April. The government is afraid conglomerates will recklessly expand their business scales. But there are doubts on the restrictions effectiveness, since the regulation on the ceiling of equity investment failed to control the chaebols' careless business expansion before 1998, during the time the system was in force.

Now that exceptions to the restriction have been expanded, it is obvious that it would be difficult for the regulation to achieve the purpose for which it was revived. We think there is no reason why the government should revive a regulation with such unproven effectiveness. It is the result of the government's adherence to the title "chaebol reform." If it is deemed the cross-affiliate investments have good functions, serving as venture capital in new businesses, it is not right to introduce restrictions on the ceiling of equity investment.

We hope the government will change its philosophy on its corporate policies, an area where, it seems, the government regards business as the enemy. The government should give freedom of management to companies and give the freedom of scrutiny and check to the shareholders and the market so that they can call the company to account. We recommend that the government seriously consider abolishment of the ceiling on equity investment and various other regulations on the top 30 conglomerates. We also propose that the government should reinforce operations that make it easy to uncover the companies' unfair practices and irrational market behavior through reform in accounting systems and disclosures. We recommend that the government should consider the introduction of a class action system through which the market can force the company's responsibility for management activities.



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