Restructuring plan faces opposition from unions, BOK

As the prospect of thousands of job losses hangs over major shipbuilders, unions are demanding the government and employers scrap restructuring plans.

And the central bank could be the biggest obstacle to the government-driven plan, as it has expressed its disapproval at being involved in the process. The bank says it is the role of the government to finance the plan, as the monetary policy objective is to support economic growth.

Since the restructuring plan has been in progress, the unions have argued that they have sacrificed enough as layoffs have already been forced on many subcontractors, including firing irregular workers and shutting down some businesses.

They argue the state-led restructuring plan should require greater sacrifice from management instead of from employees.

The labor union of Hyundai Heavy Industries (HHI) on Friday held demonstrations at several locations, including at Seoul Station and the government’s complex in downtown Seoul. They want the group’s chairman, Chung Mong-joon, to contribute to the restructuring from his own pocket, following Hyundai Group, where its chairwoman Hyun Jeong-eun has partially financed the troubled shipping company Hyundai Merchant Marine.

“We have never been notified about restructuring from the company, and we can’t agree with the currently suggested restructuring method that is mostly based on layoffs of factory workers,” the union said in a press conference at the government complex on Friday.

“We would say that the currently discussed restructuring initiative is pointless if it doesn’t include Chung Mong-joon’s personal contribution and the management’s own self-help efforts on themselves.”

The union says Chung and the HHI management are responsible for the company’s dire situation, as it gave out nearly 300 billion won ($260 million) in dividend payments to Chung, its largest shareholder, over the past decades.

The union said it is planning to hold a rally on May 4 at the company’s dockyard in Ulsan, where they will demand a pay raise and an increase in new hires to fill the void left by laid-off workers. They will also demand the company scrap its pay system based on performance.

Daewoo Shipbuilding & Marine Engineering (DSME) union members also strongly opposed corporate restructuring, as the company has already downsized last year adhering to demands from its creditors.

“The government’s restructuring plan is a means to offer indulgence to company owners so they can evade responsibility of the losses incurred by their poor business management,” DSME’s union said through their union report on Thursday.

To earn 4.2 trillion won in financial support from creditors and prevent the company from going under court receivership, the DSME union had agreed to the terms demanded by creditors, which include layoffs of around 3,000 employees by 2019 and no industrial action under a wage freeze.

However, as the government is pushing for tighter reforms on all homegrown shipbuilders, the union says it cannot accept further downsizing because the companies are already carrying out employment cuts, mostly on irregular workers performing basic production tasks such as welding.

“The government has a wrong understanding of what’s really needed, especially for non-regular workers who oftentimes become the first to lose jobs,” Kim Byung-jo, a spokesman from HHI’s labor union, said on Friday. “The government’s push for restructuring is only hurting our root subcontractors.”

Organizational restructuring has already swept the nation’s major heavy industry businesses and their suppliers. As the big three shipbuilders only received three new contracts in the past few months, companies started weeding out contract workers and suppliers.

“Already, many subcontractors are closing down due to pay cuts and a shortage of orders, resulting in a massive outflow of the workforce from HHI’s Ulsan shipyard,” Kim said.

The number of applicants for unemployment welfare surged largely from Ulsan in the first quarter this year.

Some 307,270 jobless people newly applied for the state unemployment welfare program during the first three months this year, up 1.3 percent compared to the same period last year, according to the Ministry of Employment and Labor on Friday.

The Ulsan region, home to many shipbuilders and petrochemical makers, showed the sharpest rise in unemployment recipients. The number of welfare recipients surged nearly 18.2 percent during the first three months, as the total reached 9,454.

By sector, new welfare recipients from manufacturing surged by 11 percent.

Those who worked at conglomerates and midsize companies - usually the conglomerates’ suppliers - accounted for nearly 35 percent.

Jobless numbers surged the most from machinery, electronics and shipping equipment manufacturers, showing about 30 percent year-on-year growth.

Labor union members have argued that the ongoing layoffs at shipbuilders and other struggling heavy industry sectors like petrochemicals will eventually result in a population exodus and shrinkage of Ulsan’s regional economy.

Ulsan has seen its population shrink for the past three consecutive months, according to the city.

“Those short-term contract workers doing welding and cutting in Ulsan used to work regardless of sector. Fewer orders at shipbuilders still allowed them to work at petrochemicals,” Kim from HHI said. “But with the government’s mass restructuring plan, jobs become scarce in all sectors in Ulsan.”

Meanwhile, the Bank of Korea (BOK) is against the possibility of Korea’s own quantitative easing (QE) to finance the corporate restructuring of shipbuilders and shipping companies.

“If the state-run companies need to expand their capital in order to finance corporate restructuring, fundamentally, it is the role of the Ministry of Finance,” Yoon Myun-shik, deputy governor of the Bank of Korea, said on Friday.

“In order to use the central bank’s right to print money in place of the government’s coffers, it would only be possible when there is a social consensus and the agreement of the people is established.”

Yoon stressed that loosening its monetary policy would only take place to support recovery of the economy.

The deputy governor’s comment is in sharp contrast to the expectation of the government to provide financing through a central bank QE program.

Currently, the government is looking into two ways to create the necessary funding for corporate restructuring. One is for the Bank of Korea to increase its investment in the Export-Import Bank of Korea, which is the second-largest stakeholder, while the other is for the central bank to use its right to print money and buy up mortgage-backed securities issued by the Korea Housing Finance Corporation and special government bonds issued by Korea Development Bank (KDB).

However, in order to do so, the government needs to reform the law on the Korean central bank that bans it from investing in bonds other than those whose principals are guaranteed by the government.

Even the state-run Korea Development Bank sought help from the central bank.

On Thursday, Lee Dae-hyun, vice president of Korea Development Bank, said if the central bank is to help on the corporate restructuring, it would prefer that the Bank of Korea make a direct investment or purchase subordinated bonds, or do both, instead of purchasing the special bonds from Korea Development Bank.

BY KIM JEE-HEE, KIM JI-YOON, LEE HO-JEONG [kim.jiyoon@joongang.co.kr]