Former finance minister urges restructuring

Lee Hun-jai, a former deputy prime minister for economic affairs and finance minister, stressed Tuesday that the Korean economy needs restructuring if it hopes to grow.

“We shouldn’t be afraid to undergo pain in the process of growth,” Lee said in his keynote speech during a seminar hosted by Ernst & Young Han Young held at Lotte Hotel in central Seoul on Tuesday.

“We should make this the year we change the paradigm of the Korean economy,” Lee added.

He also urged the Park Geun-hye administration to push forward with aggressive corporate restructuring.

“The government’s industrial policy created zombie companies, which are eating into the competitiveness of other companies, which is in turn changing these healthy companies into zombies as well,” Lee said.

Zombie companies are businesses on the brink of bankruptcy, with every penny earned spent repaying debts, which have only been able to survive because of low interest rates.

Since the second half of last year, the Park administration has started to take preemptive measures to keep these companies from crumbling and affecting the larger economy. This is particularly urgent, as the U.S. central bank has started to normalize its loose monetary policy, which could also force the Korean central bank to raise interest rates.

“The Korean economy has had its growth stunted because we’ve been avoiding the pain that accompanies growth,” Lee said.

He said the Korean economy has come to a critical point, and that it’s no longer possible to ignore the situation.

“The government has to throw away the thought of avoiding restructuring during its term while the crediting financial institutions should slowly and systematically clean out insolvent companies,” Lee said.

He said companies are relying too much on temporary measures that only guarantee immediate survival, rather than finding long-term strategies. He said companies need to come up with a “plan B,” where they aggressively restructure their debts while designing a realistic management system.

“The most shameful phenomenon recently has been how conglomerates have been trying to secure their survival through a zero-sum game surrounding special rights given by the government,” Lee said.

“Looking at how conglomerates are putting everything on the line in competing for the right to operate duty-free shops, it makes me wonder if we need to drop the expectation of our economic growth coming from conglomerates.”

BY CHO MIN-GEUN [lee.hojeong@joongang.co.kr]