Better oversight for bailouts

Financial authorities and lenders mapped out a relief and reconstruction program for 65 troubled companies, including 20 construction, shipbuilding and shipping companies teetering on the brink of bankruptcy.

Companies with hopes for recovery will be placed under a debt workout program, while those with little hope will be cut off from their financial life-support system.

Separately, the state-run Korea Asset Management Corporation will spend 3.8 trillion won ($3.1 billion) to help salvage 63 savings banks that are struggling under distressed loans for real estate project financing, which have become problematic due to a slump in the construction and housing market. The hope is that this will prevent their troubles from spreading to other parts of the financial industry.

The corporate restructuring and savings bank relief program is the largest bailout ever executed outside of a crisis. When left unattended for an extended period, the troubles at certain corporations, industries and financial lenders put the financial system, as well as the entire economy, in jeopardy.

We have to remember that a disease treated in the early stages after its onset can prevent a bigger illness.

But pre-emptive measures such as those carried out by the KAMC cost money, and public funding translates into a heavier burden for taxpayers. If the government must inject public funds in order to save corporations and financial institutions that have gotten themselves into trouble for mismanagement, there must be a guarantee that bailout funds will be recovered. That is the only justification for spending taxpayer money. We cannot afford the moral hazard that arises from rescue measures carried out to save certain companies every time they get themselves into a financial mess.

The financial authorities and lenders must come up with a stringent warning and oversight system to forestall corporate insolvency. And they should stop trying to fix things after the harm has been done. Lenders also should establish intricate risk control systems and operate full-time restructuring programs to avoid a long-term corporate illness.

All authorities involved must do their part through thorough oversight and supervision of financial companies.