[Editorial] Business restructuring is necessary evil

Along with another earmarking of 40 trillion won of public fund for the financial reform, the government seems poised to become actively involved in the upcoming round of liquidation of non-viable companies.

As Korea lacks the automated mechanism that forces non-viable companies out of the market, the government must have felt a degree of necessity to send a clear message of decisive forced liquidation of such companies.

However, many in industry are opposed to the government's methodology of drawing up the criteria and schedule for the closures, then relegating that duty to the banks. Many feel this could also prove detrimental to Korea.

Of the many companies with credit lines of more than 50 billion won, about 200 will be placed under bank scrutiny. Among the 200, there is a large conglomerate with over 60 affiliated companies -- a situation that surely will have a far-reaching negative influence on the economy -- as well as slew of affiliate companies of the four major conglomerates. As such, many expect a hard road ahead for those deciding on the companies to be listed for closure.

To judge the future viability of a company by using only the current indicators of productivity could prove dangerous. There are certain industry characteristics, and there probably are a certain number of companies that should be saved regardless. The business restructuring will have consequences reaching into the area of financial instability as well as employment problems.

However, in order to revive our national economy and lessen the burden on the citizenry, it would be prudent to quickly weed out the companies that cannot even earn enough to make interest payments and that do not have much future. If such companies were allowed to stay afloat and continue to suck capital out of the financial system, it would only worsen the burden of the taxpayers, as well as banks.

For companies that the government was forced to place under the workout program rather than allow them to fail, it is time to weed out the viable ones from the non-viable. In case of the construction industry, the companies under workout, and thus with less of a burden to bear, have been dumping their estimates far below industry norms and have made it more difficult for the viable companies to remain so.

The banks themselves have the first sin of being powerless to keep the market viable through forced closures. Although the banks have proposed to formed credit assessment committees, which would rigorously close down targeted businesses, the resolve of the government is more important.

Already a struggle for survival and rumors of the activation of lobbyists have been sounding. Some have predicted that perhaps the number of liquidated companies is to be fixed and that the list would include about 10 companies currently under workouts. Once again, if the loud rhetoric is not followed by comparable action, it will lead to a great disappointment to the people.

Should an affiliated company of one of the four largest conglomerates be considered non-viable, that company must be weeded out fairly and openly so that a degree of trust can be established, both domestically and internationally.

If the government and Korea once again try to escape the growing pains of restructuring, it could lead to yet another crisis. We also must consider the fact that the business restructuring had been delayed due to general elections, leading to greater economic hardship. It is time now to cut off the infected area of our skin so that a new layer of healthier skin can be allowed to grow in its place.