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[EDITORIALS]Penny wise, pound foolish

Published: 05 Jan. 2003, 23:50

Ten domestic commercial banks extended loans to the former Soviet Union in 1991, not yet repaid, and the government's guarantee on those loans expires on Sept. 7. Seoul plans to pay back some of the loans from next year's budget, but some politicians object to using taxpayer money to cover bank losses from their loans to Russia; they accuse the government of giving up on efforts to get Russia to pay up.

Such arguments have little substance, and an emotional reaction to the problem will not help us get repayment of the loans. When the Roh Tae-woo administration tried to establish formal diplomatic relations with the former Soviet Union in the early 1990s, it provided bank loans for the Communist country with its payment guarantees out of fear that direct government lending would invite criticism that it was trying to buy a relationship with the Soviets. The breakup of the Soviet Union and the political and economic chaos in the former superpower that followed were responsible for the delays in repaying the funds.

Therefore, arguments that Seoul should not make good on its payment guarantees and that it should collect the debt through negotiations with Russia are illogical and run counter to common sense: a loan guarantor must carry out his obligations not only for ethical reasons but for the very practical one that no one will trust future debt guarantees if he reneges.

It is, of course, disappointing that the government has not been able to recoup the loans, even though it has been engaged in negotiations with Russia on the outstanding debts. Nor has it established any basic principles for the repayment. Now that the government is to become the legal owner of the loans to Russia, it should look for a realistic and serious approach to getting back the money.

It is not impossible to recover the loans to Russia. As Germany did, Seoul can swap the debt for equities issued by Russia or reschedule the debt, providing a catalyst for Korean companies to enter the Russian market. Such methods can also facilitate the transfer of advanced Russian technology to Korea. Korea's international trade amounts to $250 billion a year. We should not be short-sighted or impatient in handling the $1.5 billion Russian debt.