South Korea's government seems to be backtracking on its commitment to reform by providing billions of dollars to Hyundai to avoid default on its bond repayments. It turns out that Seoul Guarantee Insurance bailed out a Hyundai subsidiary, Hynix Semiconductor, with an infusion of 600 billion won (US$458 million). Hyundai's chip-making subsidiary also received funds from the Korea Development Bank. Such measures are not without recent precedence, even for the current government with its stated resolve on reforming Korea's economy.
Although that intervention was said to be temporary, it was justified on the basis that the market isn't working properly. But this argument is logically inconsistent. If there is a belief that markets do not work, then measures to correct them must be permanent. Such arguments are disingenuous since the logic suggests that markets should be replaced with central planning.
And, so it is up to the media and other responsible observers to point out this subterfuge.
Instead, the Grand National Party has been engaging in opportunistic grandstanding to weaken Seoul's current policy for restructuring of the chaebols (family-owned corporate groups). There were some positive indications in its response to the mess it inherited on coming to power after the economic turmoil of 1997-98. At the beginning of its term of office, the government encouraged the chaebol to concentrate on shareholder value. Among other things, this would involve focusing upon core competencies through the divestiture of weak affiliates and, also, sorting out heavy debt-to-equity ratios.
The most obvious consequence of these steps would be to reduce the concentration of domestic economic power in South Korea. At the same, an increased focus on their core areas of business and reducing debt-payment guarantees between affiliates would allow the chaebol to better compete in global markets.
For their part, the Federation of Korean Industries (FKI) responded by making various promises to comply with government policies that were developed under the guidance of the IMF. This included a commitment by the top 30 chaebol to reduce their equity investments in affiliates to no more than 25 percent of their net assets before the end of March 2002. Yet now the Federation of Korean Industries is now petitioning the government to relax financial restrictions and regulations. Instead of moving ahead with their commitments, the chaebol are raising objections that they are being victimized by excessive regulations and fighting to renegotiate with the government.
However, dragging their individual and collective feet is actually counter productive to their own interests. Delays in undertaking the steps recommended by the government insure that the chaebol or their divested constituent elements will be easy prey for leaner foreign and domestic competitors.
These delaying tactics should be quashed without comment. The chaebol must face the inevitability of restructuring.
For many of them, their days of glory are long past. By continuing to hang on, they are part of the underlying weakness of the Korean economy. Their leaders should have the intelligence, dignity and patriotism to realize their greed and egotism are best served by thoroughgoing reform.
There is room for argument over what steps should be taken. However, there is considerable evidence that the remedial effects of restructuring are in the best interest of the chaebol.
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