[OUTLOOK]Floundering in Reform Quicksand

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[OUTLOOK]Floundering in Reform Quicksand

The debt rescheduling of more than 5 trillion won ($3.75 billion) for Hyundai's semiconductor affiliate seems to be working out; the wrangles among creditor banks have apparently finally subsided. Can Hynix be revitalized, butting the people at ease? I still have some lingering concerns: How are the government and creditor banks assessing the future of Hynix when there is no sign yet of a recovery in the price of semiconductors in the world market? Can Hynix obtain foreign investment as planned in debt rescheduling?

Let's wait and see, since Hynix has no serious problems right now, at least in its cash flow. But Hyundai Engineering & Construction Company, Hyundai Investment Trust Management Company, and Daewoo Motor Company still concern me very much. They have been in trouble a long time, but their sales are still uncertain and they have all exhausted their capital.

The core of corporate reform is in dealing with troubled companies. Accumulated past problems must be solved, and future problems must be headed off. We can minimize the possibility of future troubles by strengthening transparency, responsibility, and management expertise. Corporate governance, which is now characterized by family dictatorships at business conglomerates, expansion of affiliates, and corporate cross-lending which props up weak affiliates but saps the strength of strong ones, must be reformed. But reform efforts have stalled, raising worries for the future. This, in a nutshell, is why people fear that a second economic crisis is lying in ambush ahead.

To solve past problems, we have to either liquidate or rehabilitate insolvent companies. Resources have to move from inefficient to efficient sectors. But it is not easy to sell huge pieces of manufacturing equipment; labor reform can not be done painlessly. Our ability to reform depends on how efficiently and democratically we can do those things.

We don't have a good record of dealing with ailing companies with huge debts, even though many people have demanded it for the last three years. We can't leave everything to the mercy of imperfect market mechanisms, of course, and we have to be prudent in the case of key industrial firms such as Hynix and Hyundai Construction & Engineering. But we still must apply basic principles. We have to evaluate coldly the possibility of revitalizing troubled companies without political considerations. We have to pin responsibility on those who deserve it. If we decide to support companies, we have to do it in normal and transparent ways and assume that the firms' owners will take necessary steps themselves as well. Look what has happened so far. Principles were lost; expediency reigns. Unconditional support was promised and given even before examinations of assets and liabilities. Conglomerate chieftains were not held sufficiently accountable, and the government guaranteed the refinancing of maturing corporate bonds. Under these circumstances, how can we expect the government to pull the plug on ailing companies as usual?

Recently we seem to have returned to the era of of "development dictatorship" or the concept of "too big to fail." As protests against reform grow, as the government's popularity declines, the government seems to have decided to go back to the familiar ways of the old days. A return to the past can be beautiful when it comes to art, but it is disastrous for an economy. The foreign currency crisis has already proven the failure of the old ways.

There are certain aspects of the behavior of the government that are understandable. In order to implement reforms, the government has to present itself as a role model. It must also fight against groups resisting reforms. It has to establish a social system in which innocent victims can be protected. But like everyone else, government officials like to put on luxurious clothes and play high-stakes golf games. It is understandable but lamentable. There are also handicaps because the ruling party is in the minority and has a timid leader doing his best - but not enough - for reform. The social safety net has been strengthened, but not yet enough. In its restructuring policies, the government is acting like a novice surgeon. Not confident in his skills, he decides to treat his patient with nutrients and morphine instead of risking a botched operation. Better to pass the patient on to a possibly better surgeon - the next administration. Perhaps he is hoping for a miracle; maybe the patient will cure himself. However, as in the case of Hanbo Iron and Steel, the next government might inherit an utter mess, or perhaps turn out to be even more incompetent.

It may well be a burden in itself that we expect a troubled government to take care of troubled companies. There is no alternative except for firms and the people to take it on themselves to reform. The business community should stop demanding retrogressive measures. They should reorient themselves and restructure their companies to meet international standards. With an understanding of other people's pain, the people themselves have to improve their ability to select a government.

by Kim Ky-won

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