South Korea has staged a remarkable recovery since its economy virtually collapsed in 1997. The economy is expanding at a blistering pace, and unemployment is at its lowest point since the crisis hit. While the recovery has won plaudits from international observers, there has been concern that it would short-circuit structural reforms that are needed to ensure the crisis does not recur.
Reports last week that Hyundai, the country’s largest “chaebol,” or conglomerate, faced a debt crisis seemed to confirm those fears. After stalling for months, Mr. Chung Ju Yung, founder of the group, decided this week that he and his two sons would leave management, paving the way for a restructuring of the group. The move is critical to the company’s future — and perhaps that of the entire country.
Mr. Chung’s decision was triggered by last week’s news that the Korea Exchange Bank, Hyundai’s main creditor bank, had given 200 billion won ($167 million)in emergency loans to cover “short-term liquidity problems” at two of the group’s subsidiaries. Investors feared that these problems were just the tip of the iceberg, and with good reason: Hyundai had debts of $45.8 billion at the end of 1999, and restructuring plans had stalled in the face of Mr. Chung’s reluctance to dismember his empire.
According to the new plan, the Chung family will retain its shareholder rights, but the group will be run by independent managers. That is designed to restore investor confidence by separating ownership from management and increasing transparency and accountability to shareholders.
The deal is not certain. After announcing that the family would step down, one of Mr. Chung’s sons denied that he was leaving, seemingly confirming reports of a family feud. A compromise that leaves Mr. Chung Mong Hun involved in the company’s businesses in North Korea could yet unravel.
It must not. The Chungs’ decision to step down is critical to government efforts to get South Korean businesses to restructure. The chaebol were essential to Korea’s development. Now they are an obstacle to further modernization of the economy.
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