Where did all the money go?

The financial crisis at Daewoo Shipbuilding & Marine Engineering (DSME) is heading to a new climax. In an urgent meeting on Thursday, the government and creditors decided to offer a more than 4 trillion won ($3.5 billion) bailout package, which includes 1 trillion won in paid-in capital increases, 3 trillion won in new loans and approximately 1 trillion won in debt-for-equity swaps. The once-powerful shipbuilder is expected to record over a 2 trillion won deficit in the latter half of the year after a whopping 3 trillion won deficit in the first half. If the government and creditors leave things as they are, the company can hardly take new orders because its debt-to-equity ratio is likely to skyrocket to 4,000 percent. The government and lenders called for a freeze in wages, suspension of union strikes and a drastic cut in personnel expenses in return for the aid.

The crisis at Daewoo was anticipated after the world’s leading shipbuilders - including Daewoo, Hyundai Heavy Industries and Samsung Heavy Industries - competed fiercely to sell ships after the 2008 global financial meltdown. Economic experts have repeatedly warned that the three shipbuilding giants needed an immediate restructuring after Sungdong Shipbuilding & Marine Engineering and STX collapsed. But the government and creditors were reluctant to get involved in the liquidity crisis.

Much could have been done before this. For example, a former CEO of Daewoo grabbed 900 million won in annual salary and bonus. Labor and management agreed on 9 million won in special bonuses for all employees to boost their morale. Daewoo enjoyed a sweet bonus party from top to bottom at the expense of citizens’ tax payments. If this happens at a crucial industry, the government must roll up its sleeves to do something about the problem. DSME went through a harsh financial crisis and could come back thanks to a 2.9 trillion won bailout from government coffers during Korea’s 1997-98 foreign reserves crisis.

This time, the financial aid by the government and creditors must go beyond keeping the industry afloat. It must trigger a massive restructuring of our entire shipbuilding industry. The government needs to draw up a blueprint for how to resuscitate the industry, including devising a path to survival, mergers and sellouts and drastic slashes in excess facilities. The government must hold managements accountable for wasting the people’s money. Not only the executives of DSME and the Industrial Bank of Korea, its major shareholder, but the government must take responsibility. It appointed the leadership of the state-run bank.

JoongAng Ilbo, Oct. 23, Page 34