[VIEWPOINT]Break up the agricultural co-op

Not many people will disagree that the National Agricultural Cooperative Federation has to be restructured for the survival of Korea’s agriculture.
And a social consensus was formed 10 years ago that the credit financing and business functions within the federation should be separated. Despite that, the separation is still a pending issue.
In the meantime, the National Agricultural Cooperative Federation Act has been revised with the change of each administration: during the civilian government under Kim Young-sam in 1994, the people’s administration under Kim Dae-jung in 1999 and the participatory government under incumbent Roh Moo-hyun in 2004.
The core of the revisions was the question of whether or not the credit financing function should be separated from the business function.
Whenever the question was raised, the opponents of the separation, including the federation itself, persistently resisted.
When there were few objections to the separation, they tacitly prevented it by raising issues such as the condition, timing and methods of separation.
Article 12 of the supplementary provision of the National Agricultural Cooperative Federation Act stipulates that “in order to separate the two functions” the federation should establish a detailed implementation plan, including a plan for increasing the cooperative’s capital, and make the plan public within a year (by June 30 this year).
However, a complicated hidden trap can be found right here in that clause.
Asking the federation, which opposes the idea, to separate the two functions is no different from leaving a fish under the care of a cat.
The Ministry of Agriculture and Forestry used the excuse that it was for honoring the independence of the federation.
What will it do, then, if the federation says it cannot satisfy the preconditions, such as an increase in capital, after one year?
If the government respects the independence of the federation, as the ministry said, it should not pursue separation of the federation and should also give up the idea of restructuring the country’s agricultural sector.
If the government ignores the federation’s opinion and one-sidedly promotes the separation of the federation, it will be ignoring the independence of the organization.
The situation that we have worried about has unfolded before us. The federation has presented a report that in order to separate it into two entities ― one dealing with economic projects and the other with credit financings ― it needs an additional 7.8 trillion won ($8.3 billion) and that it would take 15 years to provide the necessary funds on its own.
It means that the government should bear the financial burden of separating the credit financing and business functions.
Otherwise, the report says, the federation has no intention to separate.
The Agriculture Ministry, which is embarrassed, said the federation’s calculations of the federation could be wrong, and said people should wait until November, when the results of research by the Korea Institute of Finance that the ministry placed on order will be ready.
But the federation’s report itself is not logical. It does not make sense that the capital should be increased up to twofold in order to separate the two functions, although the volume of the business transactions of both functions would not grow to the same degree.
If that is the case, it means that the federation has been managing an insolvent business with half the amount of capital that is needed.
The demand for 4.4 trillion won as additional capital for the settlement of deficits in business functions is a cover-up to conceal the fact that the chronic deficit derives from the structure of the federation, which centers around its credit financing function.
And the claim that it needs 3.4 trillion won of additional capital for the credit function distorts the fact that the fundamental reason for the shortage of capital derives from the structure of credit financing function that center around banking business.
In order to solve the federation’s structural problems, its credit financing should be separated from its business function.
Still, the federation glosses over the fact as if the essence of the problem lies in capital shortage.
The lukewarm attitude of the Agriculture Ministry has played an important role in making this problem even worse.
We have to watch whether the ministry, despite the strong opposition of the federation, can push the separation in the advent of the presidential election next year.
It is necessary to remind everyone of the fact that one of the reasons for the people to turn a cold shoulder to the administration is that it has never succeeded in reforming anything properly, although it has repeatedly made so much noise throughout these years.

* The writer is a professor of economics at Chungnam National University. Translation by the JoongAng Daily staff.

by Park Jin-do