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ROK financial sector remains weak: Report

Reform consensus evaporates
The country's largest corporations have shed more than a quarter of their workers and greatly reduced astronomical debt burdens — generally by asset revaluations anti capital market issues — in the most tangible consequences of the crisis.
"By all measures, labour has been the loser in the crisis," said Milken Institute Director of Global Studies Hilton Root in a report title "Korea's Recovery: Don t' Count on the Government.
The institute Is a non-profit, non-partisan economic think tank founded in 1991.
“Labour's weakness has been one reason chaebols have been able to resist reform." said the report, referring to the family owned conglomerates that dominate the economy.
The government has became the largest shareholder in the financial sector since Korea turned to the International Monetary Fund for a record 858.35 billion bail-out In December. 1997.
It now has majority shares in 10 commercial banks, eight Insurance firms and two in vestment trusts. Despite that, "no significant management changes have occurred." the report said.
A new regulatory body, the Financial Supervisory Commission, was set up after the
crisis, but the report questioned its independence In regulating a government-owned banking sector.
In fact, the government now controls corporate and financial assets amounting to 100 per cent of the gross domestic product.
If the equity markets are to perform properly, the chaebol need to be broken up into units whose economic performance can be directly observed, the report said.
"Combined financial statements that prevent firms from making double entries or hiding assets will be required In 2000. but it is unclear whether the government will be able to enforce this requirement," the report said.
Chaebol reform has mostly been government-induced asset swaps among the big conglomerates, known as "Big Deals" aimed at creating core business areas and cutting excess capacity.
"However, this simply allows conglomerates to dump on the public assets that are unsal-vageable and keep I In* jewels themselves," (he report said. "The Big Deal replaced the market with the government
Chaebol ranked six to 30 in terms of assets remain in deep distress with a negative income ol 6 trillion won ($5.3 billion) at the end of last year.
Before the crisis. 18 of the top 30 cheabol. with $86.2 billion in assets and 255,000 workers, were near bankruptcy. Many of their units have since been put under debt workout programmes.
"These workout programmes keep many non-viable chaebols on a life-support system Instead of letting them go bankrupt," the report said.
The weakness of the workout process Is the small number of asset sales. "In effect, the same corporate structure still exists despite the workouts." the report said.
The links between non-bank financial institutions and the corporate sector are the most problematic obstacles to reform.
"The concentration of cor-poratc control in the hands of a few families, and the strong political connections of these families is an obstacle to deep institutional reforms." the n port said.
Amid strong economic recovery. and April's general elections which left a fragmented parliament, "no urgency exists !<>r the different parties to put down their differences anil work to prevent future crises." the report said.
Three years after the outset of the crisis the consensus for fundamental reform seems to have evaporated."
SEOUL. July 7: Three years after an epic financial crisis. Korea's financial sector remains weak, the corporate structure opaque, and a consensus for refonn has evaporated, a new report by the US-based Milken Institute said, reports Reuters.