Taxpayers left holding the bag
[Reporter’s Notebook]
By Choi Sung-jin
The tug-of-war between the Finance Ministry and the Bank of Korea over how to finance the restructuring of shipping and shipbuilding industries appeared to end as BOK Governor Lee Ju-yeol backed down on Monday.
The Park Geun-hye administration has asked the central bank to print money to replenish the capital base of the state-run banks holding the equities of companies in trouble, in what financial officials describe as “Korean-style quantitative easing.”
The BOK opposed the move, saying the government should finance its economic policy with the budget instead of trying to use the central bank as a tool and hurting the latter’s independence. “They are attempting to cushion the shock of failed policy with more government-dictated financing,” the BOK union said.
In principle, the BOK is right. The primary role of any central bank is to stabilize the value of money, and printing more weakens the value of the national currency, including money held by ordinary people. And many economists think the situation is not grave enough to justify the means of last resort.
But government officials say the situation is so urgent that they can hardly wait for the National Assembly to approve such a move. Moreover, increasing fiscal spending directly increases taxpayers’ financial burden, they say.
In any case -- whether the central bank prints more money or the government formulates an extra budget -- it is people, mainly taxpayers, who will foot the bill for bailing out troubled industries and companies.
The financial authorities, or the government, and the central bank are just playing drop-the-handkerchief to pass the final buck to each other.
So it is high time to discuss who should take the biggest responsibility for the industrial and corporate failures, and the rap, if for no other purpose than preventing a repetition of similar industrial fiascos.
First and foremost, large shareholders and top managers of the two large shipping companies and three shipbuilders have to hold themselves accountable for mismanagement by, for instance, selling non-essential subsidiaries and even private assets. It was ethically unforgivable in this regard for the largest shareholder of Hanjin Shipping and her family to sell their shares just before the company began a corporate work-out program with creditors.
Some labor aristocrats are not completely free from responsibility, because they have demanded wages more than twice the national average during the boom while trying to ensure jobs even for their children and shifting the hardest work to in-house subcontract workers.
The two government-run banks -- the Korea Development Bank and the Export-Import Bank of Korea -- should be responsible for their poor supervision of the businesses into which an enormous amount of taxpayer money has already been invested. These state-run lenders instead were bent on sending their retiring officials to the shipping and shipbuilding companies, who could not, and would not, check these companies’ important management decisions, let alone their day-to-day operations.
At the top of this chain of responsibility are the government’s policymakers.
These know-all technocrats weakened the competitiveness of shipping companies by forcing them to keep debt ratios suitable for other sectors while encouraging shipyards to jump into offshore plant business when oil prices reached a peak only to see the prices slump in a few years.
Successive presidents and their parties also filled the top posts of state lenders with their confidants and unsuccessful election candidates.
When these industries and companies return to normal, either thanks to successful restructuring and the return of a boom or both, most of those who should take responsibility will likely remain at their posts, having cost taxpayers’ several dozens of trillions of won.
How long must Koreans endure this exploitation under the pretext of restructuring?