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[EDITORIALS]The auditors and KEB

Published: 19 Jun. 2006, 21:41

Korea’s Board of Audit and Inspection, announcing the result of its investigation of the sale of Korea Exchange Bank in 2003 to Lone Star Funds, said yesterday the financial trouble of Korea Exchange Bank was exaggerated and the sale price of the bank was subsequently underestimated, all in line with a plan to make it easier for Lone Star Funds to buy the lender. It means that Korea Exchange Bank was sold “inappropriately” at a “bargain price.”
The audit board, however, said it has not found any evidence or signed documents to show that Lone Star Funds intentionally took part in such a process, which would help the Korean government to nullify its approval of the 2003 sale of Korea Exchange Bank. Now the task of finding any tangible evidence is being passed to local prosecutors.
In 2003, selling Korea Exchange Bank seemed the only way to salvage the ailing bank without supplying any public funds. But the Financial Supervisory Commission and the Finance Ministry, obsessed with the notion that attracting foreign capital was the only solution, intentionally underestimated Korea Exchange Bank’s financial health and worked together to give a highly unusual regulatory approval to the 2003 sale to Lone Star Funds. That approval was morally questionable, and it was negligent of the government agencies to have done so even if it was based on a legal administrative decision. Prosecutors need to unravel whether the administration and senior corporate executives made coordinated efforts to sell the bank cheaply to a foreign capitalist with no clear qualifications.
We learned a lesson that administrative decision-making may need a major overhaul. A mere director-general in a single Finance Ministry bureau defined the conditions of the 2003 sale deal.
But the audit board’s announcement also makes us wonder if it put too much emphasis on the transparency of administrative decisions. In 2003, Korea Exchange Bank was in such a dire situation that quick action was needed. If the government now punishes officials only for a lack of transparency, will any official try to solve complicated economic problems in the future?
We also wonder if the audit board’s emphasis on further investigations by prosecutors was too much influenced by public opinion outraged by the enormous profit Lone Star is expected to reap.
Nullifying the deal if Lone Star was involved is our right. But if the investigation turns up nothing, foreign investors may flee.