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[Column] Banks and regulators are skirting duties

Posted August. 25, 2000 14:26,   


A fire broke out in a house with a gorgeous flower garden. The owner of the house made an emergency phone call at 119 for the fire. Then the fire engine was rushed to the scene, the fire was extinguished, and his house was fortunately safe, owing to the firemen`s undaunted struggles.

However, the house owner was grumbling, because his flower garden he cultivated with toil was completely destroyed, as the firemen had trampled the garden in order to put out the fire.

This is the logic about the flower garden now being circulated at the financial circle. When the Korean economy was on the brink of total collapse due to foreign exchange crunch, the moribund economy was saved with the inflow of foreign capital and investment. But now there are rising complaints about the demolition of the flower garden.

In some details, the flower garden is the Korea First Bank, which was taken over by New Bridge Capital of the United States, owner of the flower garden is Korea, and the firemen are foreign capital funds. In short, this is to say that Korea might well give Korea First Bank to the foreign "benefactors" as a gift for their saving the nation as a whole.

Nonetheless, the Korean government is committed to giving the U.S. bank an additional 3.5 trillion won. The government already has injected more than 10 trillion won for the revival of the ailing Korean bank, and worse yet, the government is required to pour more money over the coming one to two years. That money is coming from the pockets of the people.

Other banks might be jealous about the privileged Korea First Bank. There is a cynical saying that there will be none who can`t do business under such favorable conditions. The Bank of Seoul has assured that if 1.5 trillion won is given, the bank will be able to resolve its insolvency completely. From this point of view, it is doubted that the managers of the Korea First Bank are bogged down by moral hazards.

Yet the question is the fact that there are many other money pits that are absorbing taxpayers¡¯ money besides Korea First Bank.

Enterprises that have been rescued under the corporate workout program are now engaged in various malpractice, even incomparable to Korean First Bank. For instance, an owner of a business took funds from his company now on the verge of bankruptcy. Belatedly, the government launched an investigation, but to no avail. Even if the authorities start tax probes, there is no way to retrieve the people`s money.

In this context, a sticky question is whether the only businesses under workout regime should be to blame. Will it be solved with the eviction of these delinquent business managers from the industrial field? It is impossible.

This is not to defend their positions. But rather, I would like to ask, where were the organizations and officials, who are responsible for supervising and preventing irregularities committed by these delinquent businessmen?

The task of supervising the workout enterprises is in the hands of the creditor banks. If they were neglecting their supervision over the firms which they financed hundreds or thousands of billions of won, their acts amount to being accomplices of business criminals.

Why couldn`t the supervisors sent to the workout enterprises by the creditor banks do their duties thoroughly? Were they forced to look over their wrongdoing by the political circle, as was prevalent under the past bureaucratic financing systems?

There is little difference from this practice in the process of dealing with Hyundai Engineering and Construction by creditor bank, Korea Exchange Bank, in association with the company` self-rescue plans. It is a queer phenomenon that the debtors talk big rather than the creditors.

While Hyundai Group owner Chung Ju-Yung was transacting his 6.1 percent stake in HEC, the creditor banks looked the other way. If the Hyundai construction arm were facing a cash shortage, why didn`t the creditor banks ask for the disposal of Chung`s remaining 3-percent stake?

It is necessary for both the banks, which handle the people`s money recklessly, and the financial supervisory authorities, which are obligated to detect the abuse of public funds by the workout firms, to conduct self-reflections as to whether they are trapped in moral hazards.