Some of the nation's troubled construction firms and shipbuilding companies may not make it to Lunar New Year.
Financial regulators and creditor banks of the 111 builders and shipbuilders in question are expected to determine which firms to keep and which to let go by Jan. 23, just before the holiday season begins ― and they definitely should.
According to Bank of Korea officials, the global financial turmoil and consequent business setback are threatening not just midsize firms but larger enterprises, and even those affiliated with family-controlled conglomerates, as the crisis has started to spread in all directions regardless of industrial sectors and corporate scales.
Admittedly, corporate restructuring is more difficult than it was 11 years ago. In 1998, restructuring targets were clearly visible. They must now pick out bad firms ― or discern gems from pebbles, as people say ― for ``preemptive restructuring." Secondly, the overall debt-to-equity ratios of troubled firms are not so high compared with their foreign counterparts or with a decade ago, leaving them ``reluctant to enter the operating room while eager for just a transfusion," as officials put it. Thirdly, officials are less than positive in carrying out their duties for fear of discipline should something goes awry.
These unfavorable conditions, however, should never slow down swift industrial reforms to prevent problems in certain sectors from spreading to the entire industrial system. One needs to look no further than the liquidity squeeze, as banks shy away from lending out of uncertainty of borrowers' creditworthiness despite the central bank's reduction of the key interest rate to a record low.
As such, what the government should do is quite clear. It should, first of all, provide very transparent and objective criteria with little room for the disobedience of affected firms. Having businesses submit memorandums of understanding on accepting final outcomes and introducing an exemption (from discipline) clause for officials' ``bona fide" mistakes can also be considered.
Most of all, policymakers should focus on making the industries involved ― construction and shipbuilding in the initial stages ― emerge as more competitive after the reforms than before, which is what the corporate restructuring is all about. This means the exit of unviable firms should not be everything, but the officials will have to go all out to help arrange mergers and acquisitions among companies with supplementing business and financial structures in a corporate matchmaking.
All this requires the markets' trust in the government and its economic team as a fair and capable mediator-cum-reformer, but whether the current ministers are enjoying the confidence of the private sector is more than doubtful.
President Lee Myung-bak used to stress the need for ``turning crisis into opportunity." He can show he has the right leadership to make this happen, and the reshuffle of his economic team is the best starter for that.