Batting zero

Kim Dong-ho

*The author is an editorial writer of the JoongAng Ilbo.

The state-run Korea Development Bank (KDB) is a dream workplace. It pays new recruits 50 million won ($46,707) a year and rewards its executives with the most handsome packages among state lenders. Its payroll sets the standards for other public lenders like the Export-Import Bank of Korea and Industrial Bank of Korea. The bank earned its prestige during the industrialization period 30 years ago. Policy lending is essential to corporations of a poor country. All the big corporate names were indebted to KDB at one point. Korea’s status as an industrial and trade powerhouse could not have been possible without the KDB.

Its role waned with the privatization and maturing of Korean Inc. Companies with global ranks no longer needed the KDB’s aid. The bank should probably have closed when its primary function of aiding industrialization was done. It gained a new role in the Asian financial crisis of the late 1990s. Korea Inc. had to go through massive restructuring in return for an international bailout. The KDB was responsible for handling weakened businesses. Starting with LG Card in 2003, the roster of corporations in need of public support grew. A slew of Daewoo units — Daewoo Shipbuilding & Marine Engineering, Daewoo Engineering & Construction, Daewoo Motors (now GM Korea) — and smaller names like STX Offshore & Shipbuilding joined KDB’s extended family of companies needing bailouts.

The problem is that the patients ended up getting poor care. The conditions of all the companies placed under the KDB got worse despite transfusions of billions of dollars in tax funds to keep them alive. The mighty automobile and shipbuilding centers along the southern coast — Gunsan, Geoje, Tongyeong, Masan and Ulsan — have now turned into Korea’s Rust Belt. Most of them are under KDB management. Few of the 130-odd companies that became the KDB’s responsibility turned out well. They ended up closing factories or in bankruptcy court. The KDB has earned the nickname of “Minus Hands.” Minus is supposed to be the opposite of Midas, whose hands turned things to gold.

Inefficiency has become second nature. KDB grumbles that it had no choice but to take in ailing companies because the government dumped them in its lap. That argument is not entirely wrong. A plethora of pitiful corporations has been forced onto the KDB out of political calculations of past governments. The elephantine shipbuilding sector was a typical waste of public money. Even the too-big-to-fail companies should have been allowed to go under if they could not survive in the international, economic jungle. But politicians and the governments they occupied kept them on life support through emergency funding handled by the KDB. Politics bred bureaucratic governance, which made the KDB sustain the zombie corporate patients in intensive care.

As the KDB turned into a political tool, the bank became oversized with mighty influence. Over the last eight years, 125 KDB retirees were re-employed in managerial posts in companies being run by the state bank. Through this revolving door, former KDB officials dominated from the CEO suites to the auditor’s cushy swivel chairs. Few companies under those opportunists managed to be turned around.

At Daewoo Engineering, three chief financial officers over the last eight years came from the KDB. The builder’s bottom line went from bad to worse. Much smaller Hoban Construction walked away from its bid for the builder upon discovering massive losses in overseas operations. The KDB sacked six out of 12 executives at Daewoo over the fiasco while making the same complacent defense for itself. It claimed management is the responsibility of the company.

To save the Korea Inc., the KDB must be operated on first. The current administration needs first of all to change its mindset about using the KDB for political gains. The president must not rush to the sites of shipyards and auto plants in need of restructuring to suck up to workers, and lawmakers should not interfere with reform drives in fear of losing votes. They must not seat a figurehead at the top of the KDB.

The KDB must stop considering troubled corporations post-retirement havens. It must recruit capable entrepreneurs to ensure turnarounds in the companies and save as much tax money as possible. The Japanese government recruited legendary entrepreneur Kazuo Inamori, founder of Kyocera, to head Japan Airlines when the flag carrier teetered on the brink of bankruptcy in 2010. In just two years, JAL was normalized. The country’s third largest carmaker, GM Korea, is also nearing collapse. The KDB, which is its second largest stakeholder, is partly responsible. Without reform at the KDB, there is no hope for a revival of fortunes in the Korean Rust Belt.

JoongAng Ilbo, April 13, Page 28