Construction bailout

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Construction bailout

Following the stabilization package for the financial market, the government has drafted measures to stabilize the real economy, centering on the crucial construction industry.

With 3 trillion won ($2.25 billion), the Korea Land Corp. will be buying real estate owned by private companies including construction firms. The government will also be guaranteeing the bridge loans of construction companies that are struggling financially.

The government hopes these emergency measures will prevent the financial crisis that started in the U.S. from spreading to Korea’s real economy.

But the truth is that the construction industry was already in a critical state long before the financial crisis. The domestic real estate market has been stagnant since last year.

Many of the construction companies are on the verge of bankruptcy, with the global financial turmoil on top of an already difficult market.

Related industries and financial companies that loaned money to construction firms will all be affected if the industry crumbles. The construction industry has become a ticking time bomb that could throw Korea’s economy into a new crisis.

The government’s response is to remove the factors that could detonate the bomb.

In a crisis situation, special measures that appropriately fit the situation are necessary. Therefore it is understandable that stabilization measures to save the Korean economy are necessary.

But there should be several conditions. First the government aid should be extended under the premise that the companies will make their own efforts to recover. Management failure and insolvency should not be tolerated under any circumstance.

The government has no choice but to take steps to save the economy now. But any type of government aid is a burden that the public has to bear. The construction industry is struggling but it is partly the firms’ fault for recklessly expanding businesses in the past.

When the economy is thriving, the construction companies rake in larger profits but during hard times, they hold their hands out to the government for help while putting the public’s money at risk.

Such recklessness should not be tolerated. The government should take steps to help the construction industry. But it should also come up with measures that would prevent moral hazard. Only then will the public be convinced.
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