Name Korea’s global household-name companies —Samsung Electronics, POSCO, Hyundai Motors, Hyundai Shipbuilding, SK and LG. All of them have become what they are now through financing from the state-run Korea Development Bank (KDB). It has played the role as cheerleader and supporter of domestic manufacturing companies for the past few decades.
KDB will no longer play such a role after its planned privatization. The short-sighted proposal should be put on the backburner. The next government should roll back the plan.
The Lee Myung-bak administration has taken institutional steps of privatizing KDB. As a preparatory step, it established the Korea Finance Corp. as an arm for its management of troubled companies. It has opened new branches to make it a commercial bank. Under its umbrella are insurance and securities subsidiaries.
From this year, KDB will no longer be subject to supervision from the government in setting budgets and conducting personnel management. This might downgrade its credit rating as the government is no longer implicit in its guarantee.
Losses will outweigh benefits in the privatization. Few question KDB’s role in the nation’s rags-to-riches economic development. When manufacturers were in trouble, it was a doctor. Without letting the ailing firms go bankrupt, the government let KDB put them under its intensive care unit for treatment until they became healthy. Later private owners took over the recuperating companies.
In the 1997 financial crisis, many insolvent companies, including Kia Motors, were under its care. Kia, Hynix and even the Asiana Group might have gone bankrupt without KDB’s rescue. This was possible as the government was behind the bank.
After KDB goes private, such a role for industrial patients will no longer be possible. When large manufacturing companies find themselves in trouble, there will be no government bank in the Good Samaritan role.
In addition, the local commercial banking market is overcrowded. Few countries in the world see so many bank branches around the country.
KDB has sometimes sacrificed profitability for the long-term health of manufacturers and been a pipeline of funds for them, sometimes at a subsidized rate. The bank has financed small-sized manufacturing companies at a time when the other commercial banks shun them.
Scrapping its privatization has become all the more urgent as the role of the government becomes critical in this age when capitalism itself is under skepticism. As the European Union economic crisis has shown, no country is unable to pull itself out of economic malaise without a strong manufacturing base. It is no exaggeration to say that manufacturing is the backbone of a national economy. Even in this knowledge economy, few countries can survive without the ability to make things.
Korea should continue to pursue a policy of fostering manufacturing. The role of KDB should not be discounted as an industrial doctor. Making KDB commercial is a short-sighted approach. It is still not too late to reconsider the plan.