European fiscal crisis ‘worse than Depression’

KDB Financial chief says IPO does not mean privatization of his group


KDB Financial Group chairman Kang Man-soo said Tuesday that the current European economic condition is a more difficult situation than the Great Depression and would last longer.

Speaking at a meeting with reporters, the former finance minister also said the Korea Development Bank will only go for Initial Public Offering this year, stressing that privatization is a matter that should be decided in the next government.

“An IPO is needed for privatization, but an IPO does not necessarily mean privatization. (The Singaporean) government is the anchor shareholder of DBS (Singaporean bank) with 28 percent of its shares. That is strategically better,” Kang said. 

In regards to KDB senior deputy chief Chu Woo-sik’s comments earlier last month that an IPO will be the first step to privatization for KDB, Kang refused to go into detail.

“During this IPO, we will sell at least 10 to 30 percent (of the shares). I think the government should have at least a 50 percent share plus one. Whether the state will keep up with it or sell it should be decided by the next government,” he said.

Kang spared words when asked about the expected price, but mentioned that many financial institutions in the Mideast are showing interest in KDB’s IPO. He recently came back from a lengthy trip visiting financial institutes in the Middle East and Africa.

“Many say that although the economic situation is difficult throughout the world, Korea is suffering less. Korea is the most dynamic, and is recovering well in everything including exports. They say there is really no better place to invest in than Korea, and there are not many that are planning on an IPO,” he said.

“And one decent institution is going for an IPO. What do you think will happen? I would not have to answer that question.”

About the current European fiscal crisis, Kang said, “The U.S. lives on future income and southern European countries on unearned income. The world economy is facing a structural problem. Some say that capitalism is over, and now it is ‘debtism.’” He added that it is no longer an issue that economic scholars can solve.

Developed countries would have to boost their productivity, and so-called emerging countries like China or Korea their spending to break through this crisis, said Kang, but both are stuck.

“To increase productivity, working hours should be expanded with the same wages, wages should be cut while working hours remain, new investments should be done or management innovations should occur. Developed countries, however, are unable to do any of those.

“Emerging countries should spend more, which can be done by investment or consumption. In China’s case, however, it has nothing to spare as 49 percent of the GDP is already poured into infrastructure investment, and it cannot expand consumption either until the social safety net is settled, which will take at least five to ten years. Until then, it is incapable of solving the problem alone,” he said.

Kang said that Europe is at a crossroads of whether the euro gets shattered or the “United States of Europe” is born.

“Some who see it most extremely and positively say that Europe is undergoing labor pains to birth the U.S.E. Like how the U.S. maintained itself through financial unification after the Civil War, northern Europe should support southern Europe in order to unify,” he said.

“Germany is holding the key. The essence of this crisis is not economic. It is about the nature of humankind and political decisions.”

By Park Min-young (claire@heraldcorp.com)