Direction of Second-Round of Corporate, Financial ReformsThe second-round restructuring plan for corporate and financial sectors has been announced. According to this plan, companies that have little possibility of recovery will be liquidated. The government＇s intention is to wrap up corporate and financial reforms by the end of this year, using public funds to be allocated soon. It is the correct change of course, given that the government＇s original idea of bolstering all companies, regardless of their bill of health, has invited doubts about the seriousness of the government＇s restructuring plan and accelerated mistrust, both domestically and internationally.
The question is how to implement the plan. This time around, the government must do it correctly, despite any difficulties it might encounter along the way.
The key is establishing transparent and objective standards for the selection of the companies to be shut down. In principle, the government should not be involved in this matter. Yet, it has no choice but to offer a large framework in consideration of the current situation. Moral hazards are rampant and banks cannot be expected to take charge of the operation designed to squeeze their own necks.
Once the government draws up the framework, however, it must leave concrete matters with the banks; limiting its role to inspection and supervision, both during and after the process. It will not do if some companies are put on the to-be-saved list simply for political reasons, as was frequently the case in the past. Once the government has decided to compile the list of companies to pull the plug on, it is better to do so quickly. Otherwise, all sorts of rumors are liable to fly around, forcing some healthy companies to go under eventually.
Another problem is the government＇s passive attitude toward banks. Up to now, more than 1 trillion won ($910 billion) has been poured into financial reform, but the banking system is still a mess. It is not simply because they cannot recover loans from Daewoo Group. Billions of won have been wasted on unreasonable projects, as the recent Hanvit Bank scandal eloquently tells us. If this situation continues, the problem will not be solved even if billions of won in public funds are injected and corporations are pressured to tighten their belts. It is therefore high time to restructure the financial sector. Select ailing banks, probe into all their internal problems and close their doors if they are found to be hopeless.
There is one worrisome aspect. The government takes the labor-management issue too lightly. Laying off employees and their resistance are the inevitable order of things in the process of restructuring. Is the government determined enough to do this? Does it have plans to persuade workers and share their hardships in the process? As we have seen so far, without resolving the labor-management issue, reforms turn out to be empty. The government, the financial sector, corporations, and workers ought to keep in mind that if the upcoming reform does not succeed, the Korean economy will hit rock-bottom.
In addition, the government, in particular economic ministers, should learn to be more careful with their words. Truth be told, restructuring is urgent, but it is unreasonable to keep setting deadlines, like ＂within this year.＂ It is important to demonstrate the government＇s determination to stabilize the market, but setting deadlines often gives rise to more distrust in the government. The only way to gain public trust is the transparent, objective execution of the restructuring plan according to the principles, not a barrage of promises.
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