The government is shifting its focus to corporate restructuring, an issue that is of vital importance to the economy but has been put on the back burner due to the April 13 general election.
Finance Minister Yoo Il-ho said during his visit to Washington last week that the government would speed up the long-delayed restructuring of such troubled industries as shipping and shipbuilding.
Referring to Hyundai Merchant Marine Co., one of Korea’s largest shippers drowning in debt, Yoo said that if shipping companies failed to resolve their debt crises, the government would have to step in.
Jin Woong-sup, head of the Financial Supervisory Service, also stressed the need to accelerate the restructuring process during his talks with the heads of major domestic banks Monday.
Jin asked the bank chiefs to act boldly and swiftly, saying that they could miss the right time to weed out nonviable companies due to resistance from their owners and employees.
Last November, the government picked five vulnerable industries that needed downsizing — construction, steelmaking and petrochemicals, in addition to shipping and shipbuilding.
But it stopped short of taking action to eliminate excess capacity in these industries, because it did not want corporate restructuring to emerge as a political issue in the run-up to the general election.
Now, the government needs to push for restructuring, as there is not much time left to carry out the difficult task. The opportune time to do it is between now and the end of the year in light of the presidential election slated for December 2017.
From the beginning of next year, political parties are expected to shift into full campaign mode. Once campaigning starts, they will do anything to cater to voters. They could offer sweet pledges running counter to the government’s push for painful restructuring.
This possibility was recently illustrated by Kim Moo-sung, former chairman of the ruling Saenuri Party, when he went to Ulsan to support a party candidate in the April 13 general election.
To win support from employees of Hyundai Heavy Industries, a shipbuilder undergoing an excruciating restructuring process, Kim pledged to protect them from layoffs, a promise that threatened to foil the shipbuilder’s painstaking efforts for survival.
The episode shows that political parties do not mind thwarting restructuring efforts to woo voters. But they should refrain from meddling in corporate affairs to keep the restructuring ball rolling.
Corporate restructuring has become a daunting task due partly to the preceding government’s ill-advised lenient policy toward marginal companies following the 2008 global financial crisis.
At the time, the government chose to keep troubled companies afloat in the hope that they would become viable when the global economic situation improved.
One such example is STX Offshore and Shipbuilding Co. The state-run Korea Development bank extended a total of 4 trillion won ($3.5 billion) in loans to the ailing shipbuilder between 2008 and 2013, hoping that it would make a turnaround once the global economy began to recover.
But the company is still in trouble, as the global recession has continued. Recently, creditor banks have agreed to provide financial support totaling 6 trillion won to keep the shipbuilder alive.
The case illustrates the huge cost that a misguided decision incurs. Due to the failure to carry out restructuring at the right time, the number of zombie companies has increased sharply. Policymakers should not repeat the same kind of folly.
