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[Editorial] Idle Money

Posted April. 10, 2006 07:02,   


Nowadays, many businesses are keeping their money idle without reinvesting it. The Korea Exchange (KRX) reported that among listed manufacturers settling their accounts in December, 487 companies saw their combined surplus funds increasing year-on-year by 41 trillion won to 298 trillion won, with 51 trillion won of that kept in cash.

In other words, a company has 613 billion won in surplus funds (105 billion won in cash) on average. This might enhance the businesses’ financial conditions, but is likely to undermine the growth potential of the country as a whole.

Last year, the increase in facility investment was 5.1 percent, up from 3.8 percent in 2004. The amount, however, has only recovered to what it was before the Asian financial crisis. This year’s increase rate is projected to be 7.7 percent, but the monthly increase rates are quite low, standing at 0.1 percent and 2.3 percent in January and February, respectively. This is in stark contrast to Japan, whose businesses that once moved their factories abroad are returning to their home country and announcing facility investment projects day in and day out.

The Bank of Korea (BOK) analyzed that unlike foreign businesses, Korean companies failed to pay attention to technological innovations or human resources investment, which eventually resulted in sluggish investment. Investment motivations weakened, it said, as competition with China and other countries got fierce, entrepreneurship was undermined, and stagnant domestic demand became a problem, while lucrative investment opportunities decreased. The BOK also named other factors that kept investment in check: excessive regulations, labor-management conflicts, anti-business sentiment and government policy uncertainties. Many experts see these factors as the core impediments to investment.

When investment remains sluggish, it is only natural that not many jobs are created. It is no accident that the increase rate of manufacturing employees has been below zero for 14 months in a row.

The Korea Chamber of Commerce and Industry (KCCI) points out that Korea’s facility investment increase rate is lower than what advanced economies recorded when their national incomes were between $10,000 and 20,000. This means a policy focusing on investment facilitation, economic growth and efficiency is still desperately needed. Will the government keep averting its eyes from the problem, asking if businesses are again calling for the abolition of the total equity investment limits and the loosening of regulations in the Seoul Metropolitan Area? In order to address the issue of social economic disparity, the only plausible option is promoting investment by relaxing regulations.