Loopholes in trade credit systemState-run Korea Trade Insurance Corp. is on the verge of losing 200 billion won ($180 million) after a mid-sized exporter of TV sets it backed has gone de facto bankrupt. On Corporation borrowed 200 billion won from local banks from 2008, backed by export credit insurance covered by the state institution. About 150 billion won remains outstanding and won’t likely be redeemed given the company’s poor financial state. We are reminded of the trade credit crisis two years ago that hurt the financial sector after robot vacuum cleaner manufacturer Moneual filed for court receivership and turned its bonds, worth 3.4 trillion won raised by inflating business performance and exports, into trash.
The case may be different as Moneual went as far as cooking up letters of credit. On Corporation has been supplying TVs to large U.S. retailers. The original equipment manufacturer ran into trouble after the products from China were found to be faulty. The trade agency denies any intentional scheming involved.
Still there is a strange connection. A whistle-blower from On Corporation claims the two officials from the state trade credit agency that had led the fraud with Moneual until recently collected an annual paycheck of from $55,000 to $75,000 from On Corporation’s U.S. subsidiary. The two may have lent their expertise on trade scheming to the company. Prosecutors must investigate whether there had been any illegalities involved.
Even if the trade credit agency has made a simple blunder on its loan security instead of falling for another plot, it cannot avoid accountability. The company runs entirely on state funds under the auspice of the Ministry of Industry, Trade and Energy. Any of its losses must be covered by tax revenue. Some losses are inevitable to invest and promote exports. But we cannot tolerate losses of millions of dollars being repeated over a few years. Authorities must examine any loopholes in the trade credit system and the management and business practice of the trade credit agency. The government also must consider merging its function with Export-Import Bank of Korea, which does similar work.
JoongAng Ilbo, Oct. 6, Page 30