&#91EDITORIALS&#93Seoul, card firms share blame

The government has been devising a series of measures to defuse the financial time bomb of mounting bad debts at local credit-card companies. But those measures are not reassuring; they center on the establishment of a 5-trillion-won ($4 billion) fund by banks, insurance companies and other financial institutions to buy bonds of credit-card firms that will mature in three months. In return, the card companies are being asked to increase their aggregate capital by 4.6 trillion won as a self-help measure.
The administration says it has no other choice to revive the local bond market, which is now paralyzed by the card firms’ debt problems. But the government should not be cleaning up private businesses’ messes.
Those emergency measures may provide temporary relief to the companies and to financial markets, but how long will that relief last? Perhaps they will give the credit card firms a bit of breathing room, but what happens then in three months when the bonds mature? And how can the companies attract such a large capital increase?
The current crisis is a result of lax management at card companies and flip-flops by the government in regulating them. Credit-card firms have incurred staggering levels of bad debt in their quest for market share at the expense of profitability. They signed up new cardholders on the streets without credit checks. The government alternately cracked down on those practices and then let up the pressure.
Card companies have to solve this problem by making more debt-collection efforts and restructuring. The major shareholders must recapitalize their firms; a capital increase is the only way to bring Korean financial markets and the card firms back to normal. Financial authorities should also take note of how damaging inconsistent policies can be in the market. The government must seek a fundamental solution so that the current crisis is not simply repeated in three months time. Unchecked the problems could easily spread to the banking sector. As we saw less than six years ago, that would cost Korean taxpayers an enormous amount of money.