Gov`t Illegally Granted Privilege of Exemption from Liability` to Korea Credit Guarantee Fund

It was revealed that the Ministry of Finance and Economy (MFE) sent the `guiding principle for the operation of guarantee` as an official document and granted the privilege of exemption from liability to the related officials of the Korea Credit Guarantee Fund (KCGF) when the KCGF guaranteed the convertible bonds issued by the Hyundai Construction amounting to 750 billion won (913.4 billion won) in June.

Rep. Lee Sang-Deuk (Grand National Party) of the National Assembly`s Finance and Economy Committee publicized the related documents at the annual Assembly audit, saying that ``it was confirmed that the MFE sent out an official document entitled `guiding principle for the operation of guarantee of the convertible bonds issued by the Hyundai Construction` under the name of the Minister of Finance and Economy to the executive director of the KCGF on June 19th.``

According to the official document, the MFE guaranteed both the principal capital amounting to 750 billion won and the interests of the convertible bonds issued by the Hyundai Construction, and limited the term of the guarantee to the maximum 2 years and 10 months. Especially, the document includes an article on the exemption from liability. According to this article, the related officials, who deal with the special guarantee of the Hyundai Construction, would not be asked their responsibilities except willful negligence or heavy mistake.

This is an exceptional case that the government sent out an official document regarding the credit guarantee of a particular company, and set up the guiding principles for the operation.

Rep. Lee said that ``Although the MFE argues that the guiding principle is based on the Credit Guarantee Fund Law as well as its Enforcement Ordinance, the KCGF did not request the approval of the Minister of Finance and Economy, which it should have asked in advance. Moreover, since the MFE granted the privilege of exemption from liability to the related officials, it is illegal.``

Rep. Lee also said that ``the Credit Guarantee Fund Law limits the use of fund to the small and medium size companies, which do not have strong security, or uses the fund to aid the exports. However, disregarding this law, the government aided the Hyundai Construction.``

In responding to this, a MFE official said that ``the guiding principle followed the general supervisory rights according to the article 42 in the Credit Guarantee Fund Law. Hence, it followed the legal procedure. The creditors board decided it to revive the Hyundai Construction, and the Foreign Exchange Bank, which was the major creditor bank, requested the KCGF for the guarantee and reported to the MFE.``

The creditors board decided to aid 2.9 trillion won to the Hyundai Construction in June through the debt-equity swap of loans amounting to 1.4 trillion won from the creditors board, and to issue the convertible bonds for the remaining 1.5 trillion won. The creditors board took over 750 billion won, which was the half of the convertible bonds (1.5 trillion won). Although the KCGF planned to sell the rest of the bond by guaranteeing them, the creditors board had to buy them because they were not sold.

Meanwhile, according to the documents submitted to Kang Sook-Ja (Democratic People`s Party) by the MFE, four credit guarantee institutions, including the KCGF, repaid 1.2097 trillion won, which they guaranteed, by the end of July this year. It was estimated that 62.8 percent increased compared with the same period of last year.

yhchoi65@donga.com