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February 2001

Korean deputy finance minister: Still unsure about the right course to take


Korean deputy finance minister Lee Kyun Kyong speaks about the barrage of criticism that has hit the government.




       
Lee
Kyun Kyong
The Korean government has come under fire from all sides. Some accuse it of being too slow in pursuing reform and others suggest that it is interfering far too much. Chris Cockerill spoke to Korean deputy finance minister Lee Kyun Kyong about the barrage of crtiticisms

There seems to have been a lot of negative sentiment in the market concerning the restructuring of Korea's financial sector recently. Why?

I don't believe the international community's perception has been negative. On the contrary, both the IMF and the OECD are applauding Korea's restructuring and recovery process. The view is that Korea has swallowed the bitter medicine necessary to carry out a far-reaching restructuring programme.

I don't deny that the quick economic recovery has led to a sense of complacency and that during the course of restructuring labour tensions have sporadically emerged, but I want to assure people that the Korean government has a strong will and the measures to cope with these matters. Our commitment remains unwavering.

But hasn't the restructuring been too slow?

I do not agree. It has been going at full speed. We have solved the financial problems at all the institutions through the injection of public funds. And those institutions that were unviable have been liquidated. Over 500 have been eliminated. This is unprecedented.

Is the W7.1 trillion ($2.34 billion) recapitalization of the banks that took place at the end of December the last one?

The collapse of Daewoo led to more than W4 trillion of losses in the financial sector. The healthy financial institutions could absorb the losses but some weaker banks could not. So we had to raise more public money and inject it into these financial institutions to cure their ills.

So will you put more money in?

It will depend on the future. But I do not foresee the failure of any more large corporations like Daewoo in the near future. So I don't think any more money will be injected into the banks. But if a large corporation fails we will seek approval for more public money to cure further ills.

You say you are unsure about the future and yet the government continues to set deadlines for the banks. Don't you think these deadlines are unrealistic?

Yes we set deadlines, but this is the political agenda. But the key tasks that we identify will be completed according to that schedule. So a deadline does mean a deadline. But, as you know, restructuring is an ongoing process.

By recapitalizing the banks have you in fact slowed the restructuring down? Wouldn't it have been better to let one of the ailing banks fail so as to make the surviving banks restructure themselves more quickly?

Up until last year our deposit insurance system meant that we covered all deposits, no matter how large. If we had let a financial institution collapse then the government would have had the responsibility of repaying all the deposits. It would have been difficult raising the necessary funds. Also many corporations would have suffered as a result of a bank closure.

So the recapitalization of the six ailing banks was the right decision?

I don't know in the long run which is the right course to run, but in the short term the total amount of money needed for a bank liquidation is far more than if we recapitalize them and put them into a financial holding company

So cost is the main priority?

Yes.

The concept of the financial holding company has come in for criticism from the IMF and foreign investors. Why have you chosen this route in the face of such criticism?

We enacted a law last year with regards to a financial holding company. We have to open the way for various financial restructuring methods. The FHC is one of the vehicles the financial institutions can use to restructure themselves. In the end the result will be similar to a merger, but because it happens over time the potential shock to the employees will be less.

So why are the IMF and international investors against such a system?

We are now just starting the financial holding company. I think it is too early to make criticisms. We will have to wait and see if it functions well or not. If the results are undesirable then we will intervene and correct the undesirable results. It will take time but the results will be the same.

Is the government following the path of employment rather than restructuring?

Well no. As you may know, one-third of all employees in the financial sector have been laid off.

This has resulted in the unions becoming very active. How are you coping with them?

When Housing&Commercial Bank and Kookmin Bank announced their merger the unions were very much against it and they went on strike. In the end that problem was solved according to the law. The government's position is that any illegal strike by a labour movement will not be accepted.

So the government is not compromising its restructuring plans to keep the unions happy?

No.

What is the government's role in the financial sector's restructuring? It appears that it is going back and forth between "hands-on" and "hands-off" policies.

The government's role is that of an efficient supervisor that conducts prudent regulations and ensures that market disciplines are upheld. And at signs of trouble the government must take prompt corrective action.

We are also responsible for market stability. But this should not be confused with market intervention. We are now entering a stage in which market forces must prevail.

With regards to the Kookmin-H&CB merger, who is actually pushing the deal?

The majority shareholder of H&CB made the suggestion and so H&CB's CEO made the decision to merge with another healthy bank. He searched for an appropriate candidate. The CEO of Kookmin had the same intention.

So the government played no role in this?

Well basically it's the decision of the CEOs and the shareholders. The government's role is to remove any obstacles that may prevent the plan.
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