FSC’s Yim says restructuring is urgent
However, the chief financial regulator underscored that the current situation is very different from the painful Asian economic crisis that Korea went through in the late 1990s.
At the 2016 Korea Economic Forum hosted by the Korea JoongAng Daily at the Westin Chosun Hotel in central Seoul on Thursday, Yim said Korea has plenty of opportunities to restore growth momentum in the troubled industries, and eventually that of the national economy.
“It is true that the Korean economy is in urgent need of restructuring sluggish sectors like shipbuilding and steel, as they suffer from a structural recession,” Yim said. “But I don’t think we’re in a situation as bad as that right after the 1997 Asian financial crisis, since the actual crisis hasn’t hit our economy. We’re basically trying to prevent a crisis that hasn’t arrived yet.”
In the 1997 crisis, Korea faced severe liquidity shortages in regards to foreign exchange, Yim explained.
“Now, the local economy has not yet suffered from a liquidity crunch, as foreign exchange liquidity in Korea is sound and prudent at the moment,” he emphasized.
Korea’s foreign exchange reserves of $372.48 billion as of April are the world’s seventh largest, according to the Bank of Korea.
At the annual forum for foreign diplomats, businessmen and bankers operating in Seoul, Yim reiterated the financial regulator’s determination to push ahead with reforms and put emphasis on the importance of consistency.
“To make financial reforms successful, consistency should be ensured,” he said. “I am nearly half through the financial reform plans, but now, I am facing a harder agenda called ‘structural reform.’ I am expecting to face even harder tasks soon.”
The Korean shipbuilding and shipping industries are plagued with heavy debts that might spill over into the real economy.
To salvage the largest shipbuilders and shippers, the government is pushing for recapitalization of two state-run banks - Korea Development Bank and Export-Import Bank of Korea - which are the main creditors of the companies. It wants to do that by encouraging the Bank of Korea to print more money in what is called a Korean style quantitative easing.
One plan being pushed by the government is to have Korea Development Bank issue contingent convertible bonds, so-called coco bonds, and let the central bank buy them, Yim said at a recent meeting with economic editors of major daily newspapers.
The coco bond is considered a useful tool for enhancing the soundness of financial institutions’ assets, as the principal money can be converted into stocks of the institutions if the bonds cannot be repaid.
The restructuring of the shipping and shipbuilding industries is the first part of the FSC’s three-track restructuring plan, which Yim said will speed up the entire process of reforming Korea’s economic structure.
The second track is targeted at insolvent “zombie” companies, which now account for nearly 15 percent of listed companies in Korea. They are unable to pay interest on their loans due to losses. Most of those companies are construction and shipbuilding arms of local conglomerates.
The FSC and Financial Supervisory Service are working to adjust each company’s credit ratings by this month.
The FSC aims to wrap up restructuring of the steel and petrochemical industries, which have been hit by global oversupply, through voluntary mergers and acquisitions among industry members.
BY KIM JI-YOON, SONG SU-HYUN [email@example.com]
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