[EDITORIALS]Richard Halloran

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[EDITORIALS]Richard Halloran

The South Korean government is scrambling to find a way to rescue the heavily indebted Korea Technology Credit Guarantee Fund (KOTEC), a state-run company that is struggling with financial insolvencies. The fund, established to serve as a co-signer for small technology companies in need of loans but with little collateral, has long been plagued by financial troubles, due to high delinquency rates of borrowers.
So far, KOTEC has co-signed loans worth 2.2 trillion won ($2.2 billion) for local companies, but it was forced to pay 752.5 billion won for companies that failed to pay their loans. To make things worse, it is unclear whether the rest of the loans, worth 1.4 trillion won, can be paid on time.
Now an average of 11.7 percent of the companies that borrowed loans with the help of the fund have failed to pay the debts, which is an unimaginable figure for any private financial companies offering such services.
As a result, the Ministry of Budget and Planning, which is in charge of allocating funds for such state-run companies, is becoming increasingly hesitant to offer aid to KOTEC, driving the government to look for other sources of funding. The government is now trying to channel some of the funds for another state-run financial company, Korea Credit Guarantee Fund (KCGF), to KOTEC. The operation of KCGF is partly funded by private financial companies, and now the government is even urging that some of the companies give their contributions for the next year in advance, to channel the additional funds to the cash-strapped KOTEC.
But the trouble of KOTEC can never be solved through such short-term measures, as its problems stem from more fundamental issues since its inception in 1989.
KOTEC was formed in 1987 to help local companies in the Busan area, a stronghold of the Kim Young-sam administration that was largely supported by Gyeongsang province. And KOTEC’s management practices further spiraled downward during Kim Dae-jung’s tenure, as it indiscriminately co-signed loans for local technology venture companies, causing a snowballing amount of debt.
The problem of KOTEC should be solved through more fundamental evaluations about the current crisis. Taxpayers’ money should not be paid for consequences of the government’s slack management practices or irresponsible companies. Now it’s time to reconsider whether or not to revive such a company.
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