Liquidity crisis structural, report says

The recent liquidity crisis faced by Korean companies is not likely to boil over within a short period of time. Consequently, it is recommended that the companies approach the crisis with long-term measures, rather than with short-term measures.

A researcher at Korea Korea Finance Research Institute reported in his book titled, ¡°Prospects and Suggestions for Solving the Corporate Liquidity Crisis,¡± that the recent liquidity crisis stemmed from the weak corporate financial structure, rather than from a credit crunch.

The financial compensation ratio for one-fourth of the manufacturing companies is known to be less than 100%. This means that the companies have a hard time meeting financial expenses with their operating incomes, and the corporate liquidity crisis is inevitable even if the banks supply enough funds.

The report pointed out that the economies of Korea and Japan are based mainly on manufacturing businesses, such as automobiles, petrochemicals and steel, and thus it generally takes longer to recover from liquidity crises.

Park Hyeon-Jin witness@donga.com