Whip state-run firms into shapeThe state-run Korea Land and Housing Corporation, or LH Corp., has unveiled restructuring measures to ease its immense debt load. The plan mostly involves austerity measures that includes reducing operating costs, shedding jobs and cutting pay.
But it’s regrettable that they failed to address the most imperative area of restructuring business operations: overhauling the management structure.
With debt topping 120 trillion won ($105.8 billion) and a debt-to-equity ratio hovering around 540 percent, the company is facing a serious management crisis. LH Corp.’s interest-carrying financial loans total 100 trillion won, leading to 10 billion won in interest payments per day.
The government, which insists that the public entity’s loans are not part of the national debt, has finally decided to offer guaranteed payments for the company’s public construction projects. That’s not nearly enough. It is time for the government to put its foot down and realign unprofitable projects, regardless of heavy resistance from residents and politicians.
Other state-run companies are in an equally poor state. Debt at Korea Railroad, the Korea Gas Corp. and the Korea Electric Power Corp. has also been piling up. The Korea Water Resources Corp.’s debt was less than 2 trillion won at the end of 2008 but has surged more than 50 percent to surpass 3 trillion won. The unofficial debt of state corporations has been growing as fast as the pace of national debt, and some companies may be in need of a tax bailout.
The incumbent government should not be held solely accountable for the staggering debt growth at state companies. However, it should be blamed for turning a blind eye to the imperative task of reforming public entities.
It is hard to deny that the government has worsened its financial crisis by handing over costly public construction projects to state companies. Korea Water Resources was given control of the four-rivers restoration project, while Korea Railroad took over the debt-ridden Incheon Airport Railway project. LH Corp. had to take over the government’s subsidy housing project for the poor.
A company enlarging itself without restructuring measures is bound to run into trouble. The government should learn an important lesson from the LH fallout and spearhead a massive overhaul of other state companies before it passes on these immense problems to the next administration.