[VIEWPOINT]Developing a development bank

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[VIEWPOINT]Developing a development bank

Whenever irregularities have popped up at Korea Development Bank, they have immediately been followed by a debate over whether the bank should be restructured.
It’s no surprise, then, that the debate has returned after a scandal involving a slush fund run by a subsidiary of the Hyundai Group. As was the case in other incidents, once again the scandal circled around a few bank executives who are suspected of taking bribes. It therefore has no direct connection with the operation of Korea Development Bank.
At the bottom of the public’s fury over the irregularities involving the bank is, however, an understanding that these things happened due to the bank’s inherent problems.
Some people argue that the bank needs to be drastically restructured, even to the point of dissolving it. This radical reaction is driven by suspicions that political influence is behind the large-scale irregularities related to Korea Development Bank.
The bank is not a financial institute familiar to ordinary people. But it is a national bank, and one that played an important role in the development of industry and finance when the nation was pursuing economic development.
During the 1970s and 1980s, many businesses that contributed to the development of the national economy received help from the bank. Most recently, the bank acted as a troubleshooter for industrial restructuring when the nation was facing the foreign exchange crisis.
The bank may think it unfair to be treated as troublemaker that needs an overhaul just because of the irregularities by a few executives, despite its considerable contribution to national development.
But the reason that the topic of reforming the bank has been continuously raised since the foreign exchange crisis of 1997 is because its role as the channel for providing development finance and government funding has been reduced drastically.
When the government-led economic model for development became a market-oriented economy, the business boundaries of Korea Development Bank expanded to the private sector.
Private banking institutions, which have to compete with a mighty national bank in the same market, were of course not happy about the change.
Despite the pressure from commercial banks in the market, the restructuring of the Korea Development Bank has been delayed so far. The influence of the government and the political community, which have used the bank as a major policy tool, seems to have worked to delay any reform.
Korea Development Bank was founded entirely on government investments, and the government holds responsibility for its liability. Therefore, the bank follows the orders of the government, its owner, and the government uses it to solve problems when trouble breaks out in the financial market or among private businesses.
The government, however, is tempted to rely on the bank as a convenient solution to problems rather than waiting for market structures to correct things naturally. That temptation leads inexorably to corruption, which in turn keeps the debate over restructuring alive.
Considering the stage of development in our economy, the bank seems to have achieved its stated goal ― which makes it increasingly irrelevant. It is time for the government to make a decision about the bank, the same way it decided to give up its control over commercial banks.
What is important is the question of how to restructure Korea Development Bank so it can take on new functions.
Some people point out that the debate over what to do with the bank appears to be neverending, and offer this as an excuse to do away with it entirely.
But the discussion over reforming the bank should focus on reviving the competitiveness of Korea Development Bank and contributing to the national interest, rather than lashing out emotionally.
As a national bank, Korea Development Bank has accumulated its own brand power and know-how in the international financial market. We should not let these evaporate into thin air by dismantling the bank.
Some people point out the possibility that government-controlled finance will be needed to provide financial support to development projects in North Korea after unification.
If turning the bank into a completely privately owned institution is not possible at this stage, we should at least consider privatizing the area of its business that competes with the private sector.
In the advanced and neighboring countries such as Taiwan, Singapore and Japan, there are various precedents for reforming national banks according to changes in the economic environment.
What is important is not so much how it is changed, but doing something soon ― we cannot let the bank continue this way for a minute longer.

* The writer is a professor at Konkuk University. Translation by the JoongAng Daily staff.


by Koh Sung-soo

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