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Nightmare Becomes Realty

Published: 05 Jan. 2003, 12:35

The nightmare scenario of Hankook Real Estate Trust Co. defaulting on its debts has become a reality. About 3,600 buyers of com mercial and residential buildings face a total of 250 billion won ($200 million) in losses and are demanding that the government come to their aid. At the same time, as many as 65 construction projects have come screeching to a halt. The financial damage caused by the possible bank ruptcy of Hankook is expected to reach 1.7 tril lion won, but the real figure could far exceed that, considering the side effects it would likely have on the already sluggish real estate market.

The collapse might also result in a loss of faith in pub lic enterprises, as Hankook is a subsidiary of the staterun Korea Appraisal Board. No government department with power to manage and supervise Hankook, including the Ministry of Construction and Transportation, the Financial Supervisory Commission and the Ministry of Finance and Economy, seems willing to take the initiative to solve the immediate prob lem. The government must work with both the creditors and the Korea Appraisal Board to devise lossminimizing measures.

The government should prevent this debacle from causing any further damage to the nation''s economy. The Korea Real Estate Trust, current ly undergoing a restructuring program, has had some difficulty in raising funds recently. The Hankook case may have already started to affect the market.

The government should restructure real estate trusts such as Korea Real Estate Investment Trust Co., Daehan Real Estate Investment Trust and Jooeun Real Estate Trust to prevent further prob lems. It should also protect members of the pub lic who own residential and commercial build ings from this kind of collapse. The Hankook collapse was not created overnight. A sluggish economy, illegal loans, highhanded personnel administration and lax management have all played a role in this crisis. Hankook is, of course, mostly responsible, but supervisory authorities who have looked on with their arms folded should take some of the blame. To prevent a repeat of this kind of failure we have to deal sternly with those responsible.