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[Editorial] Financial Support for Viable Constructors

Posted November. 15, 2008 09:41,   


Construction companies are overwhelmed by fears of a chain of bankruptcies. Some have lowered the sale prices of apartments and put land and profitable subsidiaries on the market to secure sufficient cash flow. Their efforts have proven ineffective, however, due to deepening economic difficulties. Worse, banks’ hesitation to lend more money has aggravated the financial status of domestic builders. Over the first ten months of the year, the number of bankruptcies in the construction industry surged 47 percent year-on-year to 328.

To help temporarily cash-strapped companies, banks will receive aid applications from construction companies through next week. The plan is the first step to revive the industry. Selected construction companies can get financial support through rolling over their loans and mortgage-backed securities for a year or getting new loans. On the other hand, companies that do not qualify for assistance will inevitably go under. Given that smaller builders face bigger difficulties, banks should ease their standards instead of simply trying to help the nation’s 100 largest construction companies through the rescue program.

The biggest reason behind the crisis facing Korea’s construction industry is the excessive building of apartments when the housing market was booming. The crisis has since aggravated as relatively sound builders that are salvageable if they receive a reasonable amount of financial support have been treated like unhealthy companies. The plan does not effectively differentiate builders that deserve financial support. Nevertheless, the construction industry has no choice but to embrace the plan since the whole sector could collapse otherwise.

Financial authorities should set fair standards and strictly apply them to companies on the rescue plan to prevent fraud. At the same time, multi-faceted financial support should go to selected companies as long as they make their best efforts to survive. Banks should not categorize viable construction companies as those not worth of aid in a bid to reduce banks’ financial burden.

The government should not sit idle while watching the construction industry, a major employer in the country, and other business sectors helplessly collapse. Nevertheless, it has failed to swiftly provide effective measures to prop up the industry because of the bigger challenge of the global financial crisis. When establishing policies, timing is as important as details. The government should rush to choose which companies to help, but not risk losing promising builders in choosing which companies should be assisted.