By Lee Hyo-sik
Staff Reporter
The country should continue to restrict inter-subsidiary equity investments by the top five conglomerates to help increase corporate investment and create more jobs, a Seoul economist claimed, directly contradicting the Lee Myung-bak government's plan to ease the regulation.
Another economist argued that the government should not relax the rules on conglomerates' ownership of banks, saying such a move will increase risks to financial market stability.
At a seminar organized by the Korean Economic Association Friday, Konkuk University professor Choi Jeong-pyo said if the government abolishes the inter-subsidiary equity investment ceiling on Korea's top five business groups, they will use most of their funds not to expand investment, but to acquire stakes in affiliated companies.
``Conglomerates will also focus more on taking over a number of soon-to-be privatized public firms than on strengthening core businesses through expansion of investment. Scrapping the equity investment cap will not lead to an increase in corporate investment, but to widen the gap further between large and mid-tier business groups,'' Choi said.
President Lee has said his government will lift the law that prevents a chaebol unit with assets of 2 trillion won or more from making equity investments in an affiliated firm to help increase corporate investment and create jobs for higher growth.
Meanwhile, Hallym University professor Yoon Suk-heun called on the government to maintain the law banning non-financial companies from owning banks.
``There are pros and cons of easing rules on conglomerates' ownership of banks. But risks outweigh benefits. Most of all, if business groups control banks, it will increase financial market risks in times of emergency under the current regulatory regime,'' Yoon said.
The government has said it will relax rules on conglomerates' ownership of banks in a bid to strengthen competitiveness of the financial sector. Under the current law, non-financial companies are banned from owning more than a 4 percent stake in a bank.
President Lee has also said easing the rules would create synergy by combining manufacturing and financial businesses, and help strengthen the competitiveness of local financial companies amid intensifying global competition.