Too big to fail?

Another government-led bailout is in the works for Daewoo Shipbuilding & Marine Engineering, which has been running colossal deficits for the past four years. The government is proposing another 2.9 trillion won ($2.6 billion) in fresh funds just 17 months after top policy makers discreetly put together a 4.2 trillion won rescue package from the presidential office. At the end of the day, it is taxpayers who will foot the bill as the latest bailout requires state-run lenders Korea Development Bank and the Export-Import Bank of Korea to convert a majority of their corporate bonds in the shipbuilder to currently useless equity in the company.

Other major shipbuilders like Hyundai Heavy Industries and Samsung Heavy Industries that are enduring the same slump in orders cannot outright complain about favoritism for DSME. Even if the Financial Services Commission cites the scale of economic and financial repercussions, the second bailout contrasts the government’s handling of Hanjin Shipping, where the company was allowed to drown. Every time the government extended a lifeline to the shipbuilder, it claimed the aid would be the last. By confessing that they did not expect the shipbuilding slump be as lengthy and bad as it has, the authorities admitted to their poor judgment. They cannot escape sharing the responsibility for having poorly prepared for the risk.

It is true that most agree it would be better for the economy to keep the shipbuilder afloat. Although it requires pouring money into a bottomless pit, attempting to save the pit through debt relief and restructuring would be less damaging to the economy.

But without rigorous turnaround efforts from the management and labor, the public won’t be convinced. DSME achieved just 29 percent of its turnaround plans that it had promised in the last bailout. Its two other rivals have accomplished 40 to 50 percent of their restructuring plans. This is why the public questions the reliability of the government’s claims that the economic toll of DSME’s fall could amount to 59 trillion won and 50,000 lost jobs.

Presidential candidates must not use the DSME debacle to win votes. Their argument of using taxpayer money to save the company in order to spare smaller parts supplier from repercussions is a populist claim. Whoever wins, DSME will later become a bigger burden for the incoming administration.

JoongAng Ilbo, March 24, Page 34