The government has been trying to settle differences with the Bank of Korea over how to recapitalize policy banks to finance corporate restructuring.
While pledging to pursue a proper policy mix, government officials are keeping pressure on the central bank to directly inject money into two state-run lenders -- Korea Development Bank and Export-Import Bank of Korea. They say a bank recapitalization fund suggested by the BOK head last week will not be speedy and efficient enough to carry forward the urgent task of corporate restructuring, particularly in the shipbuilding industry.
The government’s reluctance to mobilize fiscal tools reflects its wish to detour the legislature in the restructuring process. Opposition parties, which combined will hold a majority in the incoming parliament, have said they are ready to help with the government-initiated corporate restructuring as long as complete measures are worked out to cope with possible massive layoffs.
It may be hard to meet such a precondition. Still, experts note, government policymakers should make their best to draw up plans to minimize the impact of large-scale job cuts.
The country’s three major shipbuilders, which face an imminent overhauling, employ about 60,000 workers, with their subcontractors hiring nearly 90,000. The shipyards located in Ulsan and Geojedo, South Gyeongsang Province, have cut thousands of jobs over the past year amid a drought of new orders. Combined, they received no orders in April after winning contracts for just eight vessels in the previous three months.
Their self-help plans to be submitted to creditor banks soon are said to include layoffs of an additional 4,000 personnel, but market watchers say this appears far short of what will be required in return for a cash injection to keep them afloat. A drastic restructuring of the shipbuilding companies, which are saddled with a combined debt of 8 trillion won ($6.8 billion), may incur further job losses.
“It is difficult to estimate how many more workers will lose jobs,” said an official at the Ministry of Employment and Labor, asking not to be named. He expressed worry that the fallout from the restructuring of the shipbuilding sector might be far greater than the deep scar left by the 2010 layoffs of hundreds of employees at Ssangyong Motor Co.
Unionized workers at the shipbuilding trio have drawn criticism for their resistance to restructuring accompanied by job and wage cuts. What they need to recognize is that their employers’ ratio of payroll cost to turnover at around 11 percent -- far higher than the 7.6 percent for Samsung Electronics Co., the largest and most profitable manufacturer in the country -- is unviable.
Public sentiment will become more negative on spending money to rescue the debt-laden shipbuilders if their workers refuse to endure more pains.
But some experts note that fear about job losses can be greater in Korean society, which lags behind other advanced countries in building social safety nets.
In a report released early this month, the Korea Development Institute, a state-run think tank, cautioned that massive layoffs in the process of corporate restructuring could exacerbate the household debt problem by reducing household income.
“What the government should first heed is problems that stem from massive job cuts,” said Chung Mi-hwa, an official at the Citizens’ Coalition for Economic Justice, a leading nongovernmental organization here. Chung added it was necessary to institutionalize procedures and mechanisms for drawing up measures to help workers laid off in the restructuring process.
The government needs to put forward more effective and substantial support to help secure the livelihoods of dislocated workers and enable them to find new work, experts say.
It may also be needed to extend support to subcontractors and self-employed businesses in areas such as Ulsan and Geojedo that are hit by the restructuring of industries that have propped up regional economies.
In a recent interview with a local daily, Kim Sang-jo, professor of economics at Hansung University in Seoul, proposed raising public funds by issuing government-guaranteed bonds to help fund strengthening social safety nets, which would ease resistance to layoffs.
Experts also raise the need to take a far-sighted approach to cutting staff at shipbuilding companies in order to retain capabilities to ride on a possible global rebound in the industry. Caution should be taken particularly in reducing research and development personnel.
All available means -- including job displacement, temporary leaves of absence and reduced working hours -- should be mobilized to keep as many employees as possible at work while reducing labor costs, experts say.
By Kim Kyung-ho (khkim@heraldcorp.com)