Gloomy Outlook for Restructuring

The future of the second phase of corporate restructuring is looking gloomy. As rumor has it, the government has started to focus its restructuring policies toward rescuing hopelessly insolvent companies, rather than letting them die a natural death.

For example, Hyundai Engineering and Construction Company submitted three rescue plans to its major creditor bank, obtained extended terms to pay off loans, and barely managed to survive. But it failed to carry out even half of its third rescue plan of last August, so the company recently submitted its fourth self-help plan and obtained still more support guarantees.

Maybe this is a fortunate outcome for the Hyundai Group, but it is not for the Korean economy. It is, rather, an extremely serious event. How to deal with Hyundai''s problems has become a basic benchmark standard to measure the government''s will to carry out corporate restructuring. We still have the impression, however, that creditor banks and the government, behind the scenes, continue to be led around by the nose by the Hyundai Group.

The Hyundai crisis could possibly drive the entire Korean economy into a panic, just like Hanbo Iron and Steel Company and Kia Motor Company did in 1997. The economic team led by Finance and Economy Minister Jin Nyum should not take the reckless course of the former team, which triggered the economic crisis by being dragged around by the two insolvent companies instead of establishing firm principles to deal with the problem. It is my advice that the government economic authorities should no longer let themselves be manipulated by Hyundai Engineering and Construction Company.

The Korean economy fell into a deep crisis of trust because companies and the government postponed restructuring for a long time. The most urgent task is to reestablish the market''s trust in the Korean economy. Restructuring which is based only on lip service will not help to regain that trust. At the minimum, a number of large companies with no possibility of recovery must be forced into bankruptcy, as well as perhaps one insolvent bank. It may then be possible for the government to regain the confidence of the market.

Why has the restructuring not been adequately carried out, even though there is a clear direction? Restructuring failed in our economy because it was past-oriented, rather than future-oriented. Restructuring is not only to settle insolvencies of the past, but also to change the system itself to prevent further insolvencies. But we delayed fixing the hole in the pot, and chose instead to keep pouring water into it to keep it full.

The banks hesitated to force insolvent conglomerates out of business because the downfall of large business groups could trigger bank collapses. The government is inactive because, although it has manipulated the economy behind the scenes, it shirks from its responsibility to repair the damage. In fact, it may be difficult for the government to resolve the problems－-it has shown more skill at causing problems than at resolving them.

But we do not have much time left. The government must quickly and fairly determine which banks and companies do not deserve any more support. Companies and banks with a chance to recover should, of course, be supported to normalize their operations. We owe those companies that much. We should forgive the failures made before, not during, the restructuring process. With further hesitation, the government risks going into the history books for ruining our economy.

More and more economists who are watching the clumsy restructuring efforts are worried that the chance for real reform has slipped away. "Which way will the Korean economy go?" they wonder. This is our unfortunate reality.

by Chung Woon-chan