Park Calls for "Bone-Crushing" Shipyard Reform
On Monday, South Korean President Park Geun-Hye called for "bone-crushing" overhauls of the nation's Big Three shipbuilders, Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering and Samsung Heavy Industries.
"The [shipbuilding] companies, along with creditor banks, should make bone-crushing efforts to revive their businesses," she said in a speech to parliament Monday. "If we don't carry out a bold restructuring by downsizing the overgrown workforce and cutting costs, the future of not only the shipbuilders but also the whole economy will be in jeopardy. The road for reform is painful . . . but, if we try to avoid it, our economy would be devastated and we would face even bigger pain in the end," she added.
In tandem with her call for layoffs, Park promised that there will be financial assistance and workforce retraining for those affected. However, her ruling Saenuri Party lost control of Korea's 300-seat Assembly in elections April 13, limiting her ability to push through relief bills; she called on parliament to take action on legislative proposals intended to "lessen the pain of the people."
Park's approval rating is presently in the range of 37 percent, with disapproval at 58 percent, according to the latest polling by Realmeter. Analysts suggest that her popularity has been dragged down by concerns over the economy and over her governing style. Park is barred from seeking reelection in 2018 due to term limits.
Her concerns reflect the sharp downturn in shipping and in ordering activity. Korea's Big Three shipbuilders lost more than $7 billion between them last year and have secured very few orders in 2016 to date. They are highly leveraged, especially DSME, and regulators have warned that their failure could pose a systemic risk to the economy; leading shipyard lender Korea Development Bank has been working with the government to recapitalize in the expectation of massive future losses as the yards' orderbook backlog slims. Both DSME and KDB are now facing scrutiny from regulators and prosecutors over a variety of accounting and investment decisions.
Reflecting the troubles in shipping and shipbuilding, South Korea's central bank recently downgraded its expectations for GDP growth this year, to 2.8 percent, and cut its prime interest rate to 1.25 percent to stimulate the money supply – its lowest prime rate ever.
Separately, at a press briefing Monday, Yim Jong-yong, chairman of the Financial Services Commission (FSC) warned of the possibility of a strike action at DSME and the effects it would have on the troubled yard. “It will be difficult to put a debt-laden company back on track without pains shared by lenders, shareholders and union workers,” he said. Hankyoreh Daily reports that DSME’s 7,000 unionized workers will vote on a strike measure Tuesday: the union objects to the firm’s self rescue plan, which would spin off its defense division and cut the workforce by one fifth.