It goes without saying that one of the most urgent tasks for the Park Geun-hye administration is to put the snowballing debt of state-invested corporations under control. If no action is taken against the debt, it will be a matter of time until it shakes the foundation of the Korean economy.
As of last year, the combined debt of 295 state-invested corporations was near the 500 trillion won ($474 billion) mark. Added to this mind-boggling amount was more than 70 trillion won owed by corporations under the control of provincial or metropolitan governments. The total amount exceeded the national debt of 466 trillion won.
Yet, reform was nowhere to be found. None of them started to cut their payrolls and other expenses in a move to reduce debt. On the contrary, the money-losing corporations rewarded their executives and employees with unwarrantedly high levels of pay and perks.
It was too much to expect a strong work ethic among their employees, who were virtually assured of lifetime employment regardless of their work attitude and competence. Given that almost all top managers had secured their jobs through connections, it was also too much to expect all of them to have the managerial skills demanded of them. Worse still, top managers were often found to have been involved in corruption cases.
Now they are targeted for reform by the Park administration. During her news conference on Monday, President Park promised “to correct abnormalities,” beginning with state-invested corporations.
Thirty-two were selected from among the corporations and put on the watch list. They have been told to submit their self-rescue plans, including the reduction of their payrolls and the welfare benefits they provide for their employees, and finalize the plans by March after consultations with the administration. If any of them is found to have not attained its goal in an interim September evaluation, its top manager will run the risk of being dismissed.
It is not the first time for state-invested corporations to be put under the scalpel. Previous administrations launched reforms. It did not take long for them to retreat from it for political reasons. They stopped pushing for painful cuts in payrolls. Fearing inflation, they rarely allowed the corporations to raise the prices of their goods and services high enough to cover the costs.
In launching a reform this time, the Park administration will have to avoid making the same mistakes as its predecessors made. It must be prepared to take political losses from what may prove to be an unpopular reform. Otherwise, its reform is destined to fail.