Cleaning up of ‘Zombies’
Celebrating 100 days since his taking office, Yoo Il-ho, deputy prime minister and finance minister, proposed the “industrial reform” as his core policy agenda on April 20.
It means that he will try to change the policy base by adding the industrial reform to the existing structural reforms in four sectors such as labor, public sector, finance and education, which have been pushed forward up to now by former finance ministers under the Park Geun-hye administration. In particular, Yoo stressed that he will accelerate restructuring of shipping and shipbuilding industies.
In relation with the industrial reform, the government will strengthen its supports for so-called “new industries” like IoT by providing tax and financial assistances as those industries are subject to a high risk and high return.
As part of the industrial reform, the government is expected to drive the restructuring of five industries -- shipbuilding, shipping, construction, steel and petrochemicals. The industries were hit hard by a global recession and reached their growth limit owing to the rapid chase by China in addition to the severe competition.
The finance minister said that to accelerate the reforms, he will make constant efforts to convince the National Assembly to pass controversial reform-related bills that have been deadlocked due to political conflicts and the recent general elections where the ruling party lost its majority.
"If we miss the timing for the structural reforms, we may be left far behind the global trend," said the finance minister, adding, "I will do my best to help the people feel positive effects of structural reform for economic stimulus."
However, the finance minister said that he has no immediate plan to draw up a supplementary budget to stimulate the economy, hinting a cut in the nation’s growth target this year from the current 3.1 percent. The IMF already lowered the growth rate to 2.7 percent last week and the Bank of Korea also revised it down to 2.8 percent.
Economists noted that it will be not easy for the government to set up a supplementary budget again in 2016 as the national debt accounted for nearly 40 percent of the GDP last year and the coming opposition-led National Assembly will be against it.
Under the circumstances, nearly 9 percent of Korea's top 500 companies are unprofitable and highly indebted to be called "zombies" that can't even pay interest on loans with operating profits.
According to the market researcher CEO Score, 8.7 percent of 380 companies or 33 firms, are zombie companies that can't generate enough operating profits to pay for taxes and interests for three years in a row. CEO Score analyzed only the 380 companies because the 2015 annual or audit reports of the remainder were not available. And 11.3 percent of them or 43 firms were under the situation for two years in a row.
The combined operating loss of the 33 zombie companies reached 5.1 trillion won (U$4.5 billion) last year, up 34.4 percent from a year earlier, meaning each firm suffered an average operating loss of 155 billion won (US$134.7 million) in 2015.
With the finance minister showing a strong will for the industrial reform, the financial authorities will strive harder to restructure zombie companies.