(EDITORIAL from the Korea Times on Oct. 22)

Construction Rescue
Package Should Not Re-Ignite Property Speculation

The Lee Myung-bak administration announced an aid package Tuesday to stabilize
the ailing construction sector. This measure is aimed at preventing the spreading
global financial crisis from taking a toll on the Korean economy. The
9-trillion-won package includes a government plan to purchase land and unsold
homes from staggering builders.
The government also decided to relax anti-speculation rules to stimulate
transactions of real estate. Thus, many areas, especially in Seoul and
surrounding regions, will soon be removed from the list of speculation-prone
zones, in which people have difficulty getting bank loans when buying homes. The
de-listing is to make it easier to buy houses as homebuyers can get more bank
loans.
The package came two days after the government unveiled a $130 billion aid
package for banks to help them tide over their acute shortage of hard currency as
well as their credit pinch. The construction support program is the second of its
kind since the nation was hit by the 1997-98 Asian financial turmoil. Ten years
ago, the state-owned Korea Land Corp. purchased 2.6 trillion won worth of land,
mostly from troubled or failed businesses.
The government plans to spend 5 trillion won on buying properties from struggling
construction firms ??? 3 trillion won for land and 2 trillion won for unsold
homes. The purchase will enable financially troubled builders to secure
operational funds and avoid bankruptcy. It is seen as inevitable that taxpayer
money will be injected into the construction industry hit hard by the slumping
property market amid strong anti-speculation measures.
Undoubtedly, the top priority of the Lee administration is to stabilize the
banking system and contain the impact of the worldwide financial firestorm on the
local economy. A sudden plunge in property prices is feared would trigger a chain
reaction to builders and lenders, which could lead to financial meltdown and
economic collapse. Therefore, it is important to stabilize the property market
and shore up the construction sector.
However, the state aid package is touching off controversy over its legitimacy
because taxpayers are forced to shoulder the costs for the survival of builders.
People still cannot forget a painful lesson from the Asian-wide financial crisis
that forced taxpayers to pay for an astronomical amount of public funds injected
into troubled banks and non-bank financial institutions.
Executives of many businesses, which benefited from bank-led bailout programs,
were found to have embezzled company funds, raised slush funds and committed
accounting fraud. No one is sure that such a nightmare will not grip the nation
again. A large number of struggling construction firms should be held responsible
for their current difficulties. They are blamed for overextension. They have also
gone too far in their greed for profit. They are partly accountable for creating
a property bubble in recent years.
We can no longer tolerate the way building companies do business. During the boom
years, they recklessly expanded their business without considering their cash
flow and creditworthiness. But now they are going cap in hand for a state bailout
program. This shows the culmination of ``moral hazard" on the part of private
businesses.
It is urgent for construction firms to implement drastic and painful
restructuring in return for the aid package. And their executives should take
responsibility for mismanagement and business failure. They ought to keep in mind
that there is no such thing as a free lunch. Last but not least, policy makers
must double their efforts to prevent the recurrence of real estate speculation
following the support program.
(END)