[Editorial] Taxpayers¡¯ money goes up in flames

With the government's order that six commercial banks, including Hanvit, should reduce their capital to zero, the earlier injection of a total of 8.30 billion won in public funds has come to naught. Of course, the measure was considered unavoidable; being that the banks¡¯ liabilities exceeded their assets, but it is deplorable that such a huge amount of taxpayers' money has gone to waste. There is no denying that the mishap was caused by the government's policy failures, insolvency in the banking sector and moral hazard problems on the part of the enterprises concerned.

The government earlier said that it would be difficult to retrieve the public funds, estimated at some 60 trillion won but expected to reach as high as 67 trillion won if the latest payment of 6.72 billion is included. This means that the losses will have to be covered using tax money, placing a financial burden on the public that has no responsibility for the government¡¯s policy failures or the banks¡¯ mismanagement.

Up until last July, the government¡¯s economic team categorically denied that there would be capital reductions at the banks. As a result, a number of small investors bought the banks' newly issued shares. The investors, who put their trust in the government, must be greatly shocked and disappointed at the sudden policy turnaround. Of course, they are entitled to exercise stock purchase rights but even in this case, they would be able to retrieve only somewhat less than 30 percent of their total investments.

Had the government poured in a massive amount of public funds in the first round of financial restructuring, it could have prevented the blunder and been able to forgo the fresh rescue measure. In this regard, the government authorities concerned will have to take due responsibility. At the same time, management officials of the banks involved should be held responsible for their misdeeds.

Even if the insolvent banks are rehabilitated through the supply of fresh public funds, the question is whether they would be able to avoid being written off as nonviable. There are fears that nonviable banks would eat up even more taxpayers' money.

At the moment, there is only one option for the people to take. That is to demand that the government and banks push ahead with the prescribed policy measures, build viable banks, boost the value of the banking institutions, and increase the rate of investment retrieval. The people will keep a close eye on the process as the government and related banks' seek to resolve this issue.