Industrial and corporate restructuring is emerging as a hot-button issue in South Korea in the wake of the general election in April. Although both the ruling and opposition parties are concentrating on the economic matter at the same time, their opinions are split when it comes to the specifics.
The ruling party is wary of the political community’s more-than-necessary intervention in the restructuring to be led by the government. According to it, a labor reform and policy for dealing with marginal enterprises should be implemented in a lump for the policy effectiveness. In contrast, the opposition parties are calling for comprehensive measures covering unemployment while claiming that the handling of labor reform bills should not be associated with the measures.
The ruling party and the government are unlikely to be able to stick to their plan because the opposition parties are to hold the majority in the 20th National Assembly. Under the circumstances, it is predicted that the government is likely to lose its control in the restructuring processes although it is stressing that the 20-month period preceding the next Presidential election is the best opportunity for the restructuring.
The urgency of the restructuring is snowballing as an increasing number of marginal enterprises are putting mounting pressure on the national economy. The ratio of such companies rose to 31.3% of the total listed companies in 2014 while 17 out of the top 30 business groups in South Korea were zombie companies not capable of paying their interests, to say nothing of their principals. As of the end of March 2015, the total corporate debt amounted to 2,347 trillion won (US$2,040 billion) and 21.2% of it belonged to the marginal enterprises. If the central bank raises the key rate in the near future, an economic crisis stemming from the corporate debt is sure to follow. In particular, the government failed to start any restructuring process in the shipping and shipbuilding industries for years, in spite of voices calling for it, and now the debts in the sectors amount to no less than 20 trillion won (US$17 billion) or so. Such a delay is attributable to the passiveness on the part of the government, shareholders and creditors. Now is the time, though belated, for the government to come up with a clearer roadmap for the restructuring.
The political community, on its part, should work closely together so the restructuring can lead to a recovery of the South Korean economy instead of seeing the matter as a source of political disputes. This issue is something much more urgent than their efforts to win more votes.
South Korea has gone through two major economic crises within 20 years, one in 1997 and the other in 2008. Each time, the South Korean economy overhauled itself, despite difficulties, to strengthen itself. Now, the government and the political circles are being required to repeat the same by putting their heads together.