[editorial] Contain the Dong-Ah Problem

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[editorial] Contain the Dong-Ah Problem

With the Seoul District Court's decision to end Dong-Ah Construction's court receivership, the 55-year-old company has been reduced to filing for bankruptcy. The decision, based on a judgment that the company's value would be greater after liquidation than as a going concern, sets a precedent for Korea, where not allowing big businesses to go under no matter how deeply in financial trouble they are has been a problem. Now the government must do its utmost to minimize the effects of Dong-Ah's bankruptcy by quickly forming a damage-control team composed of personnel from government agencies, creditors and the failed company itself.

Dong-Ah's demise means that more than 150 construction projects now underway in Korea, including apartment complexes and nuclear power plants, will be interrupted. Work on apartments with guaranteed occupancy should be continued by other contractors to expedite completion, and a way must be found to keep the construction down time at a minimum for such social overhead capital as the 5th and 6th nuclear plants at Uljin. The damage-control plan must be multifaceted and include measures to minimize losses by members of housing cooperatives who do not have occupancy guarantees, to forestall a chain of defaults by related firms and subcontractors and to prevent stagnation in the construction industry.

Diplomatic forces will have to be mobilized to end immediately any serious problems that may arise from overseas projects, especially the construction of Libya's Great Man-made River project. In anticipation of Dong-Ah's bankruptcy, Libya has already filed a suit in its own courts for US$3.5 billion in damages and has reported to the Seoul District Court that it wants to redeem more than US$1.3 billion in surety bonds. Of course, Dong-Ah's creditors have to bear the primary responsibility in addressing claims, but the government should take a more active role in dealing with the situation. A special envoy should be sent to persuade the Libyans that Korean contractors can complete the project. If this debacle is not handled properly, we will not only suffer huge financial losses but also lose international credibility and opportunities to participate in other overseas construction projects.

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