Posted December. 02, 2008 03:38,
The full-fledged slowdown in the real economy has forced many companies into insolvency. Industries, however, must shoulder the burden as many of them still haunt the market, let alone undergo necessary bankruptcy proceedings. Even sound companies are finding it hard to secure capital as banks have indiscriminately restricted corporate lending without thorough analysis of their financial health.
The government announced yesterday that it could form a non-governmental body similar to the corporate restructuring committee set up in the wake of the 1997-98 Asian financial crisis. The committee will consist of creditor organizations and private sector experts who will select companies in need of restructuring and offer diagnosis. They will be fully supported by the government to speed up the restructuring process. The government should have taken such a measure earlier since delaying the process of differentiating between sound and insolvent entities could threaten the survival of well-performing companies.
The negative consequences of delayed restructuring can be found in many industries, such as shipbuilding. Though only a couple of small and medium-size shipbuilders are suffering a liquidity crisis, their problems appear to be those of the entire industry. Even shipbuilders who have landed major contracts seem like they are in trouble. Another example is construction, where dealing with insolvent builders has been delayed for almost a month given their difficulty in joining a debt－rescheduling program amid government neglect.
Restructuring based on market principles is the surest way to overcome the crisis, though it might be painful at first. It is a lesson Korea learned the hard way 10 years ago. Back then, the corporate restructuring committee, which began as a consultative body of 236 creditor organizations, gave up to six months notice to viable companies and those deemed hopeless were driven out of the market without a second thought. Certain companies that suffered temporary funding problems got a second chance as restructuring cleared the market of uncertainty.
The government has to make sure that the role, authority and responsibility of the committee are clear if it is revived. The project is doomed for failure if the government tries to relegate all the hard work to the private-led committee and takes its credit. Though the government should stay away from centrally driven restructuring, its ultimate duty is to address market failure. Thus it must consider exempting public officials from stifling obligations so that they can act according to their convictions.