News Analysis: Calls for corporate restructuring spread in S.Korea after general elections

Calls for corporate restructuring came to the fore in South Korea as a major political event ended last week, boosting fears over massive layoffs especially among the so-called zombie companies.

The need to expel the zombie companies, which are on the verge of getting bankrupt but can survive by the help of record-low borrowing costs, was first raised in October last year, but politicians and government officials had refrained from launching a restructuring process ahead of the April 13 parliamentary election.

Right after the election, where the ruling Saenuri Party was unexpectedly defeated, South Korean Finance Minister Yoo Il-ho told reporters in Washington on April 15 that corporate restructuring can no longer be delayed.

Politicians hailed. Kim Jong-In, interim leader of the main opposition Minjoo Party who led a victory in general elections by securing 123 seats in the 300-member National Assembly, said Wednesday that a long-term growth base can be secured only when more aggressive structuring is implemented.

Kim, a former economic advisor to President Park Geun-hye when she won the 2012 presidential election, is an expert in Germany's socialist market economy. He is known to have played a key role in including the notion of the so-called economic democratization in South Korea's constitution.

Ahn Cheol-Soo, head of the minor People's Party which gained 38 parliamentary seats in the election, demanded a structural reform beyond restructuring, expressing his agreement with restructuring process. The ruling party won 122 seats in the election.

Minister Yoo said the government will take action unless the restructuring among shipping companies is implemented as scheduled, citing Hyundai Merchant Marine as the most worrisome company subject to restructuring.

Also expected to be included in the list of corporate restructuring are shipbuilders, steelmakers, construction firms and oil refiners which have already seen layoffs and the sales of non-core assets.

The number of employees at Hyundai Heavy Industries, the No.1 shipbuilder, reportedly reduced to 25,236 as of end-2015 from 26,710 a year earlier and 27,246 two years ago. Other major shipbuilders roughly reduced workers in the past three years.

Hyundai Engineering and Construction, the biggest builder, saw its employees fall to 7,131 as of end-2015 from 7,468 two years ago. Top steelmaker POSCO's workers declined from 17,832 to 17,045 during the cited period.

In addition to the marginal businesses having difficulty in repaying borrowing costs and recording operating losses, other big corporations sought to lay off workers as part of a pre-emptive restructuring process. The number of Samsung Electronics employees reportedly declined to 95,652 as of end-2015 from 96,510 a year earlier.

As the major political event ended last week, other conglomerates are expected to follow Samsung's suit. The launch of the government-led corporate restructuring and labor reform drive may help speed up layoffs.

Minister Yoo told reporters on Thursday that restructuring will inevitably entail an employment problem, vowing to make efforts to minimize any side effects.

Many of economic experts and political figures agreed to the need for corporate restructuring to enhance the country's growth potential and secure a sustainable growth momentum, but worrying voice was also heard for hurried and reckless restructuring that can result in massive layoffs.

Massive losses of jobs among consumers would lead the already lackluster private consumption to get worsened further, discouraging corporate investment more severely. Exports, which account for about half of the export-driven economy, maintained a downward trend for 15 straight months to March.

The South Korean government has also been seeking a labor reform drive, which employees feared could help companies dismiss them in an easier way. The reform drive could be used by companies as an excuse of reducing labor costs.

The government is expected to hurry the restructuring process this year as next year enters the so-called presidential election mood. Politically sensitive issues, such as corporate restructuring and labor reform, tend not to be pushed for in an election year. The 2017 presidential election is scheduled to be held in December.

Shim Sang-Jeong, chairwoman of the minor Justice Party which secured six seats in the general elections, told a party meeting that restructuring would turn violent without pre-emptive social safety nets as seen in the cases of Ssangyong Motor and Hanjin Heavy Industries and Construction. Endit