Restructuring is bitter pill for Korea to take

The Korean government has announced or been working out various support packages for local businesses struggling with the global credit crunch and economic slowdown. However, its efforts to restructure nonviable companies are not fast or strong enough, experts said yesterday.

The Finance Ministry, the Financial Services Commission and the Knowledge Economy Ministry are rolling out measures to expand financing for small- and medium-sized enterprises and exporters, and give incentives to key industries like auto to boost domestic consumption.

The Bank of Korea is also expected to provide more liquidity in the market by cutting the key interest rate, industry watchers said.

According to the financial authorities, the government plans to provide a total of 89 trillion won ($61.5 billion) of loans for small- and medium-sized enterprises and exporters through state-run banks next year, up 18.7 percent from this year`s estimate of 75 trillion won.

The Industrial Bank of Korea, which specializes in SMEs lending, will raise SMEs loans to 32 trillion won next year from 28 trillion won this year, with 60 percent of the 32 trillion won to be extended in the first half to prevent a multiple collapse of cash-strapped SMEs, officials said.

The Korea Development Bank and the Export-Import Bank of Korea plan to increase corporate financing to 32 trillion won and 25 trillion won next year, respectively, according to government officials.

<**1>

The government and the ruling Grand National Party are also reviewing plans to temporarily lift the loan guarantee ratio on SME funds to 100 percent from the current 95 percent at the Korea Credit Guarantee Fund and the KIBO Technology Fund.

The total loan guarantees that the two funds are likely to be increased to 48 trillion won next year from 42 trillion won this year, according to government plans.

Commercial lenders like Hana Bank plan to extend more loans for SMEs, especially in the first half of next year, as firms are likely to go through toughest times in financing in the first half, industry officials said.

Small construction firms, hit hardest by the real estate slump, are expected to receive more liquidity from a 10 trillion won bond market stabilization fund, which is being jointly created by banks and the government. Banks yesterday agreed to invest 8 trillion won in the fund.

The flood of business support measures contrasts with the lack or shortage of efforts to push bold corporate restructuring, experts said.

Knowledge Economy Minister Lee Youn-ho, who called for a restructuring of the petrochemical sector on Friday, said the government is not going to force restructuring.

"It is desirable that the industry itself carries out restructuring. Then, the government will help the restructuring process go more smoothly," Lee said.

FSC vice chairman Lee Chang-yong said the financial watchdog would focus on management normalization of public financial firms, rather than on restructuring.

Finance Minister Kang Man-soo recently said it is premature for the government to directly force restructuring in the corporate and financial sectors.

Experts said that excessive government support and a delay in corporate restructuring will inhibit a quick recovery of the economy.

"The government`s effort to support SMEs with help from financial institutions may result in increased forbearance on non-performing loans and end up with ineffective financial intermediation," Citigroup said in the report.

"The delay of the restructuring is the most serious problem for the Korean economy," Oh Suk-tae, economist at Citibank Korea, said.

"Now is the time for the government to put ailing businesses under the knife," he said.

By Kim Yoon-mi



(yoonmi@heraldm.com)