[Editorial] Restructuring Is a Must, Not an Option

President Lee Myung-bak will chair Thursday a meeting on emergency economic measures that will focus on corporate restructuring. Credit risk assessments will be concluded on 45 business groups and 38 shipping companies and restructuring targets will be confirmed. Despite all the fanfare surrounding restructuring, little progress has come both in depth and speed. The government must take a firm stance and make it clear to restructuring targets and market participants that the economy will go down unless “drastic surgery” is performed immediately.

The forecast for the Korean economy is generally cloudy with an occasional glimpse of sunshine. Foreign media have broken their habit of Korea-bashing and spoken highly of the country’s efforts to overcome the economic crisis. Underestimating the resilience of the Korean economy is undesirable but so is popping the champagne corks open through premature optimism. If a few positive indicators mislead Korea into postponing restructuring, public and private sector alike, the economy will face a bleak future.

To emerge as winners after the economic crisis, advanced economies such as the United States and Japan have held nothing back in restructuring, including removing insolvent businesses and excess workers. If Korea fails to promptly deal with its problems and naively believes it is in a relatively better position to deal with the crisis than its rivals, it risks falling far behind them let alone catching up once the crisis is over. Enhancing competitiveness through restructuring is not a matter of choice but a matter of course that will determine the fate of the Korean economy.

The sectors in Korea needing restructuring most urgently are construction, shipping, banking and insurance. Among the nation’s top 30 conglomerates, several are cash-strapped because of an excessive focus on expanding beyond their capabilities. Each troubled entity has a different excuse for inviting “bubble and excess” but all face the same challenge of taking their own actions by having management and labor share the burden. Restructuring should begin with companies suffering from moral hazard stemming from government support, those that render state support useless and create more problems, and those with militant unions resistant to reform. With many economies hit hard by the global crisis, the timing has never been more appropriate for restructuring despite the inevitable pain that will come with it.

The fear is that restructuring could raise unemployment, which is understandable for individual companies over the short term. Nonetheless, if taxpayers’ money for overcoming the crisis is wasted on keeping non-viable companies on life support instead of going to more productive sectors, this will only aggravate the situation. The industrial landscape will grow more competitive and generate more jobs only when money goes to sectors deserving investment with policies that purse both dramatic restructuring and deregulation.

Consequently, high-ranking policymakers, including the senior presidential secretary for economic affairs and the Financial Services Commission chairman, and corporate CEOs should lead resolute efforts for reform without fail. All economic players should bear in mind that the results of restructuring will largely determine the Korean economy’s fate after the crisis ends.