IMF Forum; World Bank Criticizes Korea's Chaebol Policy

Korea Times (Seoul, Korea), December 3, 1999 | Go to article overview

IMF Forum; World Bank Criticizes Korea's Chaebol Policy


A top World Bank official criticized the government's reform drive for large conglomerates, yesterday, saying that lowering the debt-to-equity ratio is not the ultimate end of policy.

Joseph Stiglitz, senior vice president of the World Bank, said in Seoul that the government's setting a common debt ratio target for large business operations should not be its exclusive goal.

Rather, he claimed the government should focus on overall restructuring to improve transparency and corporate culture.

The World Bank official also said that creditor banks should be prepared to write off some private sector debts.

``There has been much talk about the need for greater transparency and more effective governance in the corporate sector. While the debt-equity ratio is an important guide to progress in restructuring, lowering it is not the ultimate end of policy in this area,'' he said during the International

Conference on Economic Crisis and Restructuring in Korea, at the COEX Inter-Continental Hotel in Seoul.

``Overall, there needs to be more progress in the restructuring of all the chaebol, probably including acceptance of some write-offs of principal by creditors. What you're trying to achieve is a reform of the way Korean businesses act, so that they are better adapted to the current environment,'' he said.

The Korean government's pursuit of an under 200 percent debt-to-equity ratio for all chaebol has faced strong resistance, not only from the domestic business community, but also from international authorities like the IMF and the World Bank.

They have argued that Korea's policy of imposing the same debt ratio for all large companies is simply inappropriate.

Saying Korea's private sector has governance problems in a broader sense, the top World Bank official added that Seoul needs to better insulate employees and other stakeholders from excessive risks taken by majority owners. …

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