Short of Expectations

It's Time to Push More Drastic Reform of State Firms

The Ministry of Strategy and Finance unveiled its first-phase reform plan for state enterprises Monday. The blueprint calls for 41 government-owned corporations to be subject to restructuring, merger or privatization. Ostensibly the plan looks great. But looking deep into the details, one can easily find that the package falls short of people's expectations of President Lee Myung-bak's much-avowed public sector reform.

It is disappointing that the government has scaled back the scope of its original reform drive. The Lee administration had planned to ferret out 50-60 state-run businesses. But was forced to reduce the number to 41, a mere 13 percent of 319 government-controlled entities, in the face of a strong backlash from unionized workers who unabashedly threatened to take part in candlelight rallies against U.S. beef imports in May.

The government was scheduled to announce the blueprint in June, but had to delay the announcement by two moths due to the beef row and lost trust in the Lee leadership. According to the reform plan, 27 corporations will be privatized. Among them are the Korea Development Bank (KDB) and the Industrial Bank of Korea (IBK). The list also includes 14 companies, which enjoyed debt relief programs from state-run lenders after the 1997-98 financial woes.

Most of the banks and businesses on the list have long been the targets of privatization. Therefore, only five enterprises, including Korea Real Estate Investment Trust, were newly chosen for privatization. Critics slam the government for not seeking to privatize more big-name state enterprises, pointing out that it has only selected a few small fish.

Twelve other corporations, including Korea National Oil Corp. and Korea Resources Corp., will face restructuring. And the government plans to merge Korea Land Corp. with Korea National Housing Corp. It said the merger is necessary to eliminate redundant and duplicate functions of the two firms. The Lee administration has vowed to unveil the second and the third phase of the reform plan by the end of the year.

But it seems that the state firm reform drive has already lost its steam before its implementation. Both policymakers and the people have only realized how difficult it is for the nation to push real reform of government-owned firms. There are growing worries that President Lee might backpedal on one of his campaign pledges as executives and workers of many public firms are trying to maintain their vested interests at the sacrifice of public good.

President Lee could suffer from a serious setback if he fails to keep his commitment to reform state enterprises which are under criticism for bloated structure, mismanagement, inefficiency, bureaucracy and corruption. Lee may also face more difficulties pressing ahead with a much broader reform of the public sector, which is part of the President's promise to speed up economic revival.

State enterprises currently account for 33 percent of the nation's gross domestic product (GDP). The country cannot enjoy sustainable economic growth without reforming government-run corporations. The Lee administration should make all-out efforts to have state firms reborn as new entities to better serve the people.