The creditor banks also prescribed 13 construction companies and two shipbuilders to be placed under creditor-led debt workout programs. The decision was part of a second round of corporate restructuring measures announced by creditor banks, following the first one announced at the end of January, which resulted in the closure of one shipbuilder and construction firm each and debt workout programs prescribed to 11 construction companies and three shipbuilders. As a result, seven debt-ridden companies will be forced to close down, while 29 businesses will undergo creditor-led debt workout programs.

But investors were less than thrilled with the decisions. When the first group of businesses selected for closures or debt programs were announced, creditor banks were criticized for “unreliable” results of their evaluations. In fact, Shinchang Construction, which was classified as “stable” in the evaluations, was deemed financially nonviable and placed under court receivership in just a month. The second list of companies slated for closure or debt programs is also receiving much criticism for being “still unreliable.”

Most of the companies slated for closure this time have already declared bankruptcy or applied for court receivership, while others are already considered defunct by the market since their owners have fled. That is why creditor banks are being criticized for being more interested in filling up the list than in weeding out sick businesses in order to lessen the economic burden on Korea. The effectiveness of corporate restructuring also remains to be seen. Banks must set aside W2.4 trillion (US$1=W1,349) to cover bad loans following the selections of companies for closure or debt relief. That’s far short of the W7 trillion the market believes is necessary to cover bad loans. It is also insufficient to confidently say that restructuring in the construction and shipbuilding industries -- considered to be the most troubled financially -- has been completed.

In an opinion column in the Wall Street Journal last Friday, President Lee Myung-bak proposed six basic principles to help countries around the world overcome the financial crisis. Based on Korea’s experience in overcoming the Asian crisis, Lee stressed the implementation of “bold and decisive measures, rather than incremental ones,” in order to regain market confidence. He also stressed the simultaneous implementation of bank recapitalization and debt clean-up under strict deadlines, as well as offering incentives for private capital-holders to participate.

Starting in April, the government said it plans to evaluate the finances of subsidiaries of Korea’s top 44 business conglomerates, while implementing corporate restructuring measures on shipping companies. It also plans to evaluate the financial soundness of businesses that have received more than W50 billion in loans from financial institutions. The president must look at his own country and see how well his “six principles” of restructuring, which he recommended to the world, are being implemented.