It’s restructuring time

Restructuring insolvent local companies has become the biggest issue on the economic front since the April 13 general election. Deputy Prime Minister for the Economy Yoo Il-ho last weekend underscored that he cannot put off restructuring vulnerable enterprises suffering from oversupply anymore. On the following day, Financial Supervisory Service Gov. Zhin Woong-seob urged CEOs of local banks to cooperate with the government’s initiative. Bank of Korea Gov. Lee Ju-yeol got on the bandwagon by vowing to do his share if necessary.

International financial institutions also joined the chorus. Moody’s Investors Service reiterated Monday that it could lower Korea’s expected growth potential after the government has been dragging its heels on the issue. Five days earlier, Moody’s warned that the government’s delay in restructuring could have a negative impact on Korea’s sovereign credit rating. The IMF Saturday advised that if the government wants its fiscal policies to succeed, they must be accompanied by structural reform.

Needless to say, restructuring zombie companies is a top agenda item as evidenced by the mire of deficits facing our core industries — the shipbuilding, shipping and steel sectors. They can hardly see the light at the end of the tunnel due to the double whammy of declining demand and oversupply.

Despite a critical need for drastic self-reform, no one dares to take charge. While the government and creditors are turning a blind eye to restructuring, politicians came up with nonsensical catchphrases — “No restructuring whatsoever,” for instance — in a bid to draw votes. Financial circles went so far as to ridicule the two consecutive conservative governments for their “dazzling feat of creating zombie enterprises.”

The government and creditors must take primary responsibility for the critical delay in structural reforms. But greater responsibility should be borne by politicians. Lawmakers from ruling and opposition parties alike approached the issue from political and economic perspectives. Whenever creditor banks began restructuring companies on the edge of bankruptcy, their owners rushed to politicians to warn them of losing votes from their constituencies.

We must put an end to the vicious cycle. If our politicians care about their election victory at whatever cost, it could put our whole economy in the red. They must not forget the lessons from Sweden’s iconic shipbuilder Kockums, which sold a huge crane at its shipyard in to Hyundai Heavy Industries for a dollar in 2003.

JoongAng Ilbo, Apr. 19, Page 30