Future-Oriented Financial Reforms

Union protests against the announced merger between Kookmin Bank and Housing and Commercial Bank are unsettling the nation. No matter which side is right or wrong, it is distressing to watch the anxious bank workers trembling in the cold as they confront the police.

The government''s determination to turn the economy around by tightening the slackened reins of restructuring is understandable. The union members'' objections to the government''s decision to choose healthy banks over their ailing counterparts for reforms are also understandable. While it won''t be easy to find the right answers, it is nevertheless frustrating that the government and the banks in question found their only course of action in clashing with and hurting each other.

While it is inevitable for pains to accompany reforms, it is not desirable to forcibly distribute hardship on specific sectors of the society. Perhaps the best solution for now is not to try to find the right answers hastily but for each side to take a step backward.

It is necessary for the government to catch its breath. Its first task should lie in a serious review of its methods since even the president has admitted that the restructuring pursued so far had errors. The government has to find out whether there were problems with its policy details, whether it used unskilled tactics to implement the policies or whether the problems stemmed from the policymakers. It must never begrudge the time that goes into this introspection.

Genuine financial reforms are actually just beginning. The possibility for making mistakes rises if the government presses its policies at a time when it is extremely important to take the first step correctly. Since a reform signifies changing the system, there must be thorough preparation. Since it is easy to anticipate resistance from the targets of reforms, the government must devise policies that focus on its abilities to execute them. It is necessary to distinguish between long-term problems and short-term issues from a broad prospective, and make efforts to balance economic logic and political logic. It is also necessary to clarify policy priorities.

If it is to inspire market confidence, the government should not rashly decide on finishing all the restructuring in the immediate future, but instead admit limitations and present a reliable blueprint for the future.

Not many companies will be able to survive when they are pressured simultaneously by a credit crunch and economic downturn. The priority policy goals for the government lie in eliminating uncertainties in the market to recover consumers'' investment psychology and restoring the financial system so that funds can circulate again.

It is especially necessary for the government to concentrate its capabilities on financial reforms based on the use of public funds for the moment, if it wishes to end a vicious cycle of corporate and bank troubles going hand-in-hand, depressed consumption and stagnant production.

As for financial reforms, no institution can be exempt from the efforts to change the existing system that proved to be a failure. Not only do nonviable banks have to reform, relatively healthy banks also have to transform themselves in preparation for competition.

But in the process, it is important for the government to rely on market strength and not attempt any intervention that violates market principles. Since a merger between healthy banks is a matter of choice for survival, it has to respect their independent judgment on necessity and method. It should be also left to the market to decide whom to hold accountable for the repercussions to other banks and the final result. The government must stand guard against the possibility of its heedless intervention distorting market principles and intensifying conflicts.

What the government has to actively intervene in right now is deciding the fate of the ailing financial institutions that will soon receive public funds. Making these institutions in charge of corporate financing competitive edge is an issue that has to be pursued without delay, and based on principles.

Making the targets of restructuring understand the necessity of reforms is another important part of reform policies. Stressing equilibrium does not mean distributing equal slices of the pie, but making those that end up with a smaller piece understand why its share is less. It won''t be easy to persuade union members of the healthy banks to be merged when the government is dallying with the restructuring of troubled banks.

Unions, for their part, have to use logic in dealing with the management and the government, instead of letting emotions run loose. A struggle cannot win if it doesn''t have public support. Instead of unconditionally opposing inevitable layoffs, the unions should demand the creation of conditions that can help them voluntarily seek better jobs, such as investments in job training. It could be a wiser choice to acquire competitiveness rather than trying to hang onto their current jobs. It is time for everyone concerned to take a step backward and think about the framework of reforms based on a long-term perspective.