Preconditions for Creation of Public FundThe newly-appointed economic ministers have changed the existing government position. They say public funds will be created by the end of this year after a National Assembly approval. It is a desirable change, of course, in view of the fact that such a move is inevitable to hasten reform of the still ailing financial sector and stabilize the market. As for the scale of the fund, efforts should be made to minimize the burden on taxpayers, but it should be adequate for a lasting settlement of the problem. Unlike in the past, the government must take pains to analyze the scale of bad loans and achieve a public consensus over the size of the public fund. Since the opposition Grand National Party has emphasized the necessity of creating a further public fund all along, it should extend its help for the sake of the nation, rather than making it a political issue.
Nevertheless, several conditions should be met first. The creation and management of the fund must be made much more transparent this time around, and a systematic device for strict post-allocation government management should be introduced. Until now, public funds were treated as if they were personal winnings and their usage was not sufficiently monitored by government. From a joint survey entitled ＇Results of Moral Hazard Examinations of Companies Under Debt Workout Programs＇, conducted and disclosed a few days ago by the Financial Supervisory Service (FSS) and creditor banks, it has become clear that the moral hazard problem has been rampant among banks and owners of the corporations in connection with bank loans, as well as what little the financial watchdog did in the way of supervision. The brazenness of Park Sang-hee, owner of the Mijoo Group, and other corporate figures deserve harsh criticism. What have the creditor banks and the FSS done to stop the situation deteriorating to this point? Up to now, more than 100 trillion won ($89.6 billion) has been poured into financial reform, but insolvency continues and the competitiveness of the financial industry is at a low, in part because of such indifference and moral hazard. In this respect, what is needed is a systematic device to sever the vicious cycle.
Above all, the government should study the extent of bad loans to be settled and the amount of funds to be injected. Then the government should make precise spending breakdowns available to the general public. In addition, it should frankly explain what has happened to the 107 trillion won, including 64 trillion won of public funds, already doled out.
At the same time, the government must investigate whether creditors and the financial watchdog neglected their supervisory duties. If necessary, they should be held accountable, along with the corporate owners whose illegal actions have come to light. In addition, measures should be prepared to guarantee transparent and strict management in the future. Related laws and systems should be revamped, banks and corporate owners should be held responsible in case additional bad loans emerge in the future, and the National Assembly should be endowed with powers to check the dispensation of public funds. Finally, efforts should be made to reduce the scale of the public burden. Seriously insolvent firms must be liquidated, and financial institutions and the companies in question should be asked to make serious attempts at self-rescue.
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