[FOUNTAIN]A mismatch in fact and theory

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[FOUNTAIN]A mismatch in fact and theory

A mismatch is a tactic used in the game of basketball. If a team can maneuver during the course of the game so that a relatively short guard is defending against the team's skyscraper center, it will be a lot easier for the team to score.

We can easily see mismatches off the basketball court. If a company promises to pay a supplier in one month although the company will be paid by its customers in three months, the company could go into default during the intervening two months.

Some economists say the 1997-98 foreign exchange crisis also resulted from such a mismatch. The argument is persuasive. Chung Duck-koo, a professor at the School of International and Area Studies at Seoul National University, asserted that view last week at seminars at Stanford University and the University of California, Berkeley in the United States. Mr. Chung was the vice minister of finance during the crisis period. He said that Korea failed to keep the speed of the nation's democratization, market opening and internationalization in balance, and that the development of economic "hardware" was not matched with "software" development. Ever since the "Civilian Government" of Kim Young-sam came into power in 1993, the Korean economy moved rapidly toward an open market system because of Seoul's participation in the Uruguay Round of global free trade talks and membership in the Organization for Economic Cooperation and Development. But its risk management capability, including foreign exchange management, was not based on open-market principles.

One good example is the management of foreign exchange reserves and the won-dollar exchange rate. Korean merchant banks in October 1997 had $12.9 billion of short-term foreign loans outstanding, but had $16.8 billion of investments in long-term instruments. Even worse, Seoul did not have the tools to recognize the mismatch between long-term assets and short-term liabilities and act to correct the problem.

Just as Mr. Chung said at those U.S. universities that such mismatches still exist in Korea, a scandal was breaking out concerning meetings among senior officials at Posco, the newly-privatized Korean steel firm; President Kim's youngest son, Kim Hong-gul and Choi Gyu-seon, a central figure in other scandals.

Posco was privatized 17 months ago when the government sold the last of its shares in the firm. But its corporate governance is still ambiguous, and the firm is still under political influence. The firm will be viewed with suspicion unless the mismatch of privatization and government influence is cleared.

The writer is a JoongAng Ilbo editorial writer.

by Sohn Byoung-soo

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