Firm Guidelines NeededThe government is announcing one economic stimulus measure after another. It plans to release 101 trillion won ($80.8 billion), or 63 percent of the estimated expenditures, in the first half of this year, including 58 trillion won in the first quarter. With the launch of the new year, the Ministry of Construction and Transportation has disclosed various construction projects as stimulus measures, including the development of a new city in Hwasong and construction of six satellite cities in the metropolitian area.
The rumor of lowered interest rates, including the call rate, is widespread. In addition, the government and the Millennium Democratic Party have issued a statement that the ceiling for securities investment out of pension funds will be raised a great deal from the current 3 trillion won, and publicly vows that the top priority for this year''s economic policy is resuscitating the stock market. The Korea Development Bank will reportedly put in 850 billion won to purchase corporate bonds of six companies, including Hyundai Engineering and Construction Co., maturing by the end of this month.
This picture does not strike us right because the Korea Development Bank is not the leading creditor bank for Hyundai Engineering and Construction. To make matters worse, approximately 740 billion won is reported to be allocated for the Hyundai Group. The government gives the impression that it has openly come forward to prop up the Hyundai Group.
Even if it is necessary to revive the economy, such indiscriminate stimulus measures are not acceptable. The bourse has rebounded, but it is problematic when stock prices for ailing companies are on a steep rise on a daily basis. So long as the system in which only the salvageable companies are allowed to survive is not in place, excessive economic buoyancy measures will sustain the companies that deserve to be closed and restructuring will be put to the back burner. The government is partly right when it asserts that a patient needs to be strengthened before a surgery. Yet the government said the same thing two years ago, and with the economic recovery soon after, reform efforts fizzled out.
Specifically, the Korea Development Bank''s purchase of corporate bonds is a typical example of shoring up sick companies. Even if assistance is rendered, it is necessary to examine the companies'' self-rescue plans and the process of implementation, but the government seems intent on handing out the money first.
We are concerned whether the government will repeat the same mistake it committed right before it went to the IMF for bailouts in late 1997. At that time, the government twisted the arms of commercial banks to extend cooperative loans to large shaky companies, including Hanbo Steel, in fear of chain bankruptcies. Similar action will delay restructuring, bring about corruption on the part of companies receiving loans and the taxpayers may have to pick up the immense tab. The government''s double-faced demeanor is also problematic: on the surface it says, "Banks must be held accountable for ailing companies in the future," but behind the scenes it is discussing sanctions against the Korea First Bank for not cooperating with the government. If the purchase of corporate bonds is indeed necessary, the Korea Development Bank should do it after obtaining the companies'' self-rescue plans and while observing whether they are implementing their pledges. The same is true with economic stimulus packages. Without a blueprint and preparations, the government makes haste only after things deteriorate into a dire state.