No More Stopgaps and Verbal SlipsRecent irresponsible comments made by economic policymakers have had dire consequences. A few days ago, Dong-A Mutual Savings and Finance Co. faced a run and suspended operations, even though the company was ranked third in the sector with 1 trillion won ($833 million) in assets and was in good financial health. Some people argue strongly that the problem was triggered by successive gaffes committed by senior economic officials. Those arguments could be correct, although officials have not admitted as such. In early December, Lee Ki-ho, senior presidential secretary for economic affairs, said that one or two finance companies might go under. Soon after, Lee Keun-young, head of the Financial Supervisory Service, concurred, feeding depositors'' mistrust of finance companies.
If a finance company goes bankrupt, a depositor is guaranteed only 20 million won ($16,700). No wonder depositors are eager to withdraw their money. Even officials from the supervisory service concede that these imprudent remarks may have sparked the current problems. As we have repeatedly pointed out, the current economic team''s verbal slips, impromptu policymaking and frequent changes of policy direction have exceeded the tolerable level. The list of recent gaffes is long: a return to issuing long-term bearer bonds is being examined; the stock market listing of life insurance companies might be delayed; many different statements of the amount of public funds for this year''s restructuring; and behind-the-scenes agreements with labor unions.They all will impede financial restructuring. The post-Dong-A plan to stabilize finance companies is no more than a stopgap measure. How much longer will the government make policy this way?
We urge the government to seize this opportunity to carry out a sweeping reorganization of finance companies. Now that interest rates have been liberalized, excessive competition in the financial sector urgently needs to be resolved. Instead of just nominally changing these financial firms into savings banks, they must be transformed into mortgage specialists. A clear blueprint must also be offered, covering plans for the mid- to long-term future. Only then will the general public be able to put their trust in finance companies once again.