[EDITORIALS]Lessons from AIG debacle

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[EDITORIALS]Lessons from AIG debacle

Negotiations to sell three Hyundai financial firms, which dragged on for more than 18 months, have collapsed. The negotiating parties, the Korean government and the American International Group, or AIG, announced Friday decisions to discontinue all talks. The government said it continues to plan to sell the companies - Hyundai Securities, Hyundai Investment Trust and Securities and Hyundai Investment Management. But the failed talks could hardly have come at a worse time or in a worse way, since they reflect failure in the effort to restructure the economy and troubled businesses.

The primary reason for the breakdown appears to rest with AIG. The U.S.-based financial holding company took advantage of the weakened bargaining power of the government, which was up against a deadline. AIG repeatedly made one-sided demands, managing to make many of them stand. A good case in point is the lowering of Hyundai Securities' price to 7,000 won ($5.30) per share, which was below the market price at the time the memorandum of understanding was signed. AIG also demanded that the government make up for Hyundai Investment Trust and Securities' losses that might materialize after the purchase. When the government balked at this so-called "put back" option, AIG decided to end the talks.

But the government cannot escape blame. Coming this far and then failing in the final stages of the talks indicates some clear deficiency in negotiating skills. The government accepted many of AIG's demands against the opposition of Hyundai Securities and smaller shareholders. Keeping in mind the hasty sale of Korea First Bank, a deal in which it agreed to make up for the bank's losses, Seoul should be well aware of what it would have faced.

Still, finding a buyer for Hyundai Investment Trust is urgent. The company carries 5.6 trillion won in debt and would require 2 trillion won to keep it afloat even if it were not sold. With signs of an economic recovery, the government should use all its resources so that it does not damage efforts to reorganize other troubled companies, including the planned sale of Daewoo Motor and Hynix Semiconductor.
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