(EDITORIAL from the Korea Times on Dec. 25) - Corporate Restructuring: Nonviable Firms Should Be Forced to Exit Market

Policymakers, regulators, bankers and businesspeople have talked too much about the importance of corporate restructuring amid the reverberating global financial and economic crisis.

But disappointingly, they have done little to implement
restructuring programs for ailing industrial sectors and troubled corporations.
In response to the worldwide turbulence, the government and the central bank have
lowered interest rates, provided liquidity to the market, and arranged bailout
packages for hard-hit businesses.
First of all, policymakers have focused on stabilizing the financial market and
heading off corporate bankruptcies with monetary easing and fiscal expansion. But
they have come under severe criticism for neglecting their efforts to speed up
industrial and corporate restructuring, which is badly needed to tide over a
crisis reminiscent of the Great Depression. Critics say that the government and
financial authorities have only tried to help shaky firms ease their financial
difficulties.
In a nutshell, policymakers have failed to work out details on how to push
restructuring. They have just let creditor banks decide on how and what to
restructure. Against this backdrop, corporations have dragged their feet on
self-rescue efforts as they can live on life support measures from the government
and financial institutions. So, the ``moral hazard'' problem has arisen. The
public has become angry at government aid to nonviable businesses because
taxpayers' money is wasted. Healthy companies have complained that such misguided
support distorts the whole industry and the market.
This situation reminds us of Gresham's Law that says: ``Bad money drives out
good.'' As such, bad companies drive out good ones as long as there are no fair
and strict rules on corporate restructuring. It is no use infusing money into a
business that should have gone under. Thus, it is imperative to ferret out
companies with little chance of survival, which should be forced to exit the
market. Bailout programs should be available on condition that the recipients
implement radical restructuring.
We welcome a plan by the Financial Supervisory Services (FSS) to push
restructuring of the struggling shipbuilding and construction sectors. Twenty-six
medium-sized shipyards and building firms are highly leveraged with their
combined debts standing at 50 billion won ($37 million). The shipbuilding
industry, which had enjoyed a boom over the past several years, is now in
distress due to falling orders in the aftermath of the global turmoil. Local
shipyards must be held responsible for their overcapacity.
Construction firms are also blamed for recklessly expanding their operations by
riding on a property boom. The government unveiled a nine-trillion-won aid
package for the shaky building sector in October. Despite the bailout, builders
are too slow in their self-rescue and downsizing. It is obvious that they cannot
remain afloat as financial firestorms attack the real economy, deepening fears of
recession. Therefore, the staggering companies should no longer delay their
restructuring if they want to survive the crisis.
(END)
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