BOK chief warns about adverse effects of state-led restructuring

By Byun Duk-kun SEOUL, April 22 (Yonhap) -- Bank of Korea (BOK) Gov. Lee Ju-yeol, while meeting with senior officials from local lenders in Seoul on Friday, warned about possible problems that may stem from corporate restructuring, including a credit crunch and increased losses for local banks. "There is a possibility that conditions for banks may further worsen once the drive for restructuring really gets under way. There also is the possibility of a credit alert being raised in the process of restructuring, and therefore banks need to pay special attention in sorting out jades from stones," Lee said. The BOK recently revised its outlook for consumer price inflation this year to 1.2 percent, down from 1.4 percent forecast three months earlier and far short of its 2 percent annual target for the 2016-2018 period. The central bank clearly sees a need to boost local spending. But neither does it see a need to inject additional funds to that end nor believe restructuring is a remedy for slumping consumption. "Of course, corporate restructuring is a very important part of the economy and the BOK maintains a basic stance that it will take necessary steps when a need arises," the BOK governor told a press briefing Tuesday, shortly after the bank's monetary policy board decided to keep its policy rate steady at 1.5 percent for the 10th consecutive month in another clear defiance of a government wish to boost market liquidity. "What the BOK is currently doing for restructuring is to create a favorable environment for restructuring by helping to maintain a stable economy at the macro level. Looking at current conditions in the financial market, I believe local firms face no significant difficulties in finding the fund needed for restructuring," he added. Already, the government has named five industrial sectors -- construction, petrochemicals, shipbuilding, shipping and steelmaking -- that will face an intensive overhaul, with a warning that many others may face a similar fate unless they get their acts together quickly and voluntarily. The move apparently is in line with repeated calls from the BOK chief, who has singled out corporate restructuring as one of three elements that may enable an economic recovery when all three factors move forward harmoniously. But as to why restructuring is urgently needed, as well as how it should be financed, the government and the central bank differ. The government and its ruling party apparently view restructuring as a way of expanding market liquidity, and thus boosting domestic consumption. In the runup to the parliamentary elections held earlier this month, the ruling Saenuri Party proposed requiring the central bank to directly take over outstanding loans of policy lenders, such as the state-run Korea Development Bank, which in turn will allow such lenders to finance what the ruling party has called much-needed funds for corporate restructuring and M&As. The party and the government alike insist the additional funds funneled into the market will push up overall spending. Professor Park Jin from the state-run Korea Development Institute said that companies and their own creditors should be allowed to decide which firms will be worked out and which will be left alone. "The government must not be involved in the process of distinguishing between jades and stones to decide which companies will be restructured. The only thing the government must do is to let policy lenders stop their support for marginal firms," he said. But as to why restructuring is urgently needed, as well as how it should be financed, the government and the central bank differ. The government and its ruling party apparently view restructuring as a way of expanding market liquidity, and thus boosting domestic consumption. In the runup to the parliamentary elections held earlier this month, the ruling Saenuri Party proposed requiring the central bank to directly take over outstanding loans of policy lenders, such as the state-run Korea Development Bank, which in turn will allow such lenders to finance what the ruling party has called much-needed funds for corporate restructuring and M&As. The party and the government alike insist the additional funds funneled into the market will push up overall spending. Professor Park Jin from the state-run Korea Development Institute said that companies and their own creditors should be allowed to decide which firms will be worked out and which will be left alone. "The government must not be involved in the process of distinguishing between jades and stones to decide which companies will be restructured. The only thing the government must do is to let policy lenders stop their support for marginal firms," he said.