August 14, 1997.
Dark clouds hung heavily over the slopes of Inwang Mountain outside the window, making it seem like rain could pour down at any moment.
Sitting on the leather sofa in the spacious office with plush carpeting, President Kim Seong-gyu spoke with an expression of discomfort.
"So, are you saying that you won't extend the grace period for Gi-chang Group's debt moratorium, which ends next week, and will let it expire as scheduled?"
Minister of Finance and Economy Lee Eun-hyeong, who had received the question, answered with a stern expression.
"Yes, Mr. President."
Leaning back in his chair, President Kim Seong-gyu gave Lee Eun-hyeong a disappointed look.
"With the economy already in bad shape, if Gi-chang Group goes bankrupt, are you seriously telling me you don't know what will happen to the economy?"
"I am well aware that it will have a severe impact on the economy."
"Then what is the reason for not extending the debt moratorium agreement?"
Lee Eun-hyeong sighed softly and, with a heavy heart, answered.
"While I'm also concerned about the negative impact on the economy, I felt that if we continued to drag this out, it would only make the aftermath more difficult to manage. So, I had no choice but to make this decision."
"Explain to me what the specific problem is."
Lee Eun-hyeong wiped the sweat from his forehead with a handkerchief, then cautiously explained.
"First, the enormous debt of 9.5 trillion won is tied up in Gi-chang Group's subsidiaries, including the automobile sector, putting an immense burden on the financial sector. The issue is especially severe with the 800 billion won worth of debt guarantees from the third financial sector companies, which are not part of the debt moratorium agreement."
Sitting across from them, Chief of Staff Koo Hyung-ki frowned and interjected.
"If we use public funds to repay the debt held by third financial sector companies, the first and second financial sector companies, which haven't been able to recover their loans due to the debt moratorium, will oppose it. But if we leave things as they are and the third financial sector starts trying to reclaim funds during the election period, Gi-chang Group will inevitably face bankruptcy, and we will not be able to avoid the worst-case scenario."
"In that case, why not extend the debt moratorium and force third financial sector companies to participate as well?"
President Kim Seong-gyu seemed to simplify the issue, and Lee Eun-hyeong, feeling the weight of the complexity, muttered a quiet complaint.
However, he couldn't show his frustration and explained why that wasn't feasible.
"If we did that, the smaller third financial sector companies with weaker financials would likely collapse as well, compared to the first and second financial sectors."
"Mm."
"Not only that, but the debt tied to Gi-chang Group has significantly reduced the lending capacity of the commercial banks. As a result, even large corporations are finding it increasingly difficult to borrow money, exacerbating the liquidity shortage."
President Kim Seong-gyu furrowed his brows at this issue, which he hadn't considered before.
Noticing President Kim's reaction, Lee Eun-hyeong, the Minister of Finance and Economy, continued his explanation.
"The biggest problem is that, instead of assisting with the restructuring efforts to save Gi-chang Group, the management is actively obstructing the efforts of the government and creditors."
"Is that really the case?"
"Yes."
Lee Eun-hyeong nodded as he looked directly at President Kim, who raised an eyebrow in surprise.
"As with other failing companies, the creditors planned to first remove the management, then conduct a detailed audit to save the companies that had a chance of recovery, while liquidating the ones that couldn't be saved."
Lee Eun-hyeong recalled the actions of Gi-chang Group's management during the moratorium period and spoke with a serious expression.
"However, despite the urgency, Chairman Go Jeong-hwan is refusing the creditors' demand for his resignation, giving one excuse after another."
"..."
"In the meantime, Gi-chang Group's debt hasn't decreased. In fact, it's increased by over a billion won, further increasing the burden on the government and creditors."
"Tsk. After driving the company to this point, his greed is excessive."
President Kim clicked his tongue, his expression darkening.
Seeing this, Lee Eun-hyeong leaned forward and spoke urgently.
"If we extend the debt moratorium this time, the deadline will expire during the presidential election period. If problems arise then, the shock will be much greater than it is now."
"Hmm."
President Kim, unable to make a decision easily, heard Lee Eun-hyeong's final point.
"Of course, it will have a very negative impact on the election as well."
As expected, President Kim's face twisted at the mention of the election's impact.
Unlike in the United States, South Korea followed a one-term, five-year presidency, meaning Kim Seong-gyu would not be able to run for president again.
Even so, it would be more beneficial for him personally if the current ruling party, the Justice Party, retained power in the election rather than facing a regime change.
This was especially the case after earlier this year, when Hanbo Group's bankruptcy and its involvement in bribery scandals related to government officials, finance personnel, and his own son had surfaced, threatening to turn into a corruption issue for his administration.
As he lightly tapped the armrest of the sofa with his fingertips, President Kim asked,
"If we don't extend the debt moratorium and let it expire, what will happen to Gi-chang Group?"
Lee Eun-hyeong, who had taken a step back compared to earlier, quickly answered,
"As I mentioned earlier, after the creditors conduct a detailed audit, companies with recovery potential will be supported with debt reduction or extension for smooth third-party acquisition. The ones that cannot recover will go through the liquidation process."
"Ultimately, a significant number of workers will lose their jobs during the liquidation process."
"That's true, but in order to save even part of the group, such sacrifices are unavoidable."
"Hmm."
President Kim Seong-gyu furrowed his brow, crossed his arms, and wore a thoughtful expression as he pondered deeply.
Lee Eun-hyeong, the Minister of Finance and Economy, who had explained all the reasons why the Gi-chang Group situation couldn't be delayed any further, nervously watched the president.
In the quiet office, a heavy silence settled, and outside the window, the first raindrops began to fall.
After some time, President Kim Seong-gyu broke the silence and finally spoke again.
"We still have a few more days. I'll think it over and make a decision carefully."
Lee Eun-hyeong couldn't hide his disappointment.
However, he also understood that the decision wasn't easy, considering that thousands of jobs were at stake, not only for the employees of Gi-chang Group but also for its subcontractors.
"The Ministry of Finance and the creditors need time to prepare, so we'll need a decision within three days at the latest."
"I understand."
In a slightly annoyed tone, Lee Eun-hyeong remained silent, no longer pressing the issue.
***
A few days later.
Seok-won leaned against his wooden office desk, watching the news on television.
[...This Friday, the debt moratorium on Gi-chang Group's automotive division will expire, but it is likely that the creditors will continue to manage the company's cash flow for a while even after the agreement ends.
As a result, Gi-chang Automobile and Taepyungyang Automobile are expected to avoid bankruptcy for the time being, as their debt repayments to financial institutions will be delayed, and the car factories will continue to operate normally.
However, the total amount of loans from financial institutions amounts to a staggering 95 trillion won, and with no clear solution in sight, it will be difficult to find a way to resolve the Gi-chang Group crisis and achieve a "soft landing."
For this reason, most experts predict that, based on economic principles, Gi-chang Group will inevitably face bankruptcy and legal proceedings.
However, this would lead to a fall in South Korea's international credibility and trigger a chain reaction of bankruptcies among its suppliers...]
Seok-won grabbed the remote, turned off the television, and muttered to himself with an expressionless face.
"If the management steps down now and the company goes into legal proceedings swiftly, the damage could be minimized. But Chairman Go Jeong-hwan's greed to hold onto control is dragging the company deeper into the hole."
If mass unemployment and economic instability were to strike just before the presidential election, it would be disastrous for the Blue House and the Justice Party.
Aware of this, Chairman Go Jeong-hwan was stalling, hoping to buy time and force concessions from the government and creditors to keep his management rights.
"If it were any other time, his tricks might have worked, but facing the coming IMF crisis—this giant tsunami—none of that will matter."
In fact, it would only make the damage and suffering even worse.
"He should have realized by now, after watching Hanbo Group fall apart, that the saying 'no one is too big to fail' is true. But it seems he hasn't learned that lesson."
The fierce storm had already reached the doorstep, yet the pitiful sight of still not grasping the situation made Seok-won sigh deeply.
At that moment, the vibrating bell rang, and Seok-won took out his phone from his pocket, checked the number displayed on the screen, and answered the call.
"It must still be the middle of the night in New York. What brings you to call at this hour?"
[There's urgent news I need to share with you.]
Seok-won instantly sensed that something bad had happened from the slightly tense voice of Landon.
"What's going on?"
[After Moody's placed South Korea on its watchlist last month, S&P is now also expected to downgrade South Korea's credit rating from 'Stable' to 'Negative.']
"…I figured this would happen eventually."
Although he had expected it, Seok-won couldn't hide the somber expression that appeared on his face upon hearing that South Korea's national credit rating had been downgraded.
[Once S&P's announcement comes out, the scale of foreign investment funds pulling out of Korea will increase even more.]
"With the exchange rate already soaring and people leaving to avoid exchange losses, if the credit rating is downgraded as well, that atmosphere will only intensify."
The exit of foreign investments was a problem, but the more serious issue was that if the national credit rating dropped, there was a real risk that foreign currency procurement could be completely cut off.
'The Asian financial crisis and the chain bankruptcies of domestic conglomerates have made foreign currency procurement harder than before, but until now, we could still borrow dollars by paying high interest rates.'
However, if the national credit rating drops and the outflow of foreign capital accelerates, the situation would be completely different, and it was clear to Seok-won that the impact would be dire.
[Major media outlets, including the Wall Street Journal, have been publishing articles warning about South Korea's foreign exchange crisis. If the credit rating is downgraded this time, as you said, it will be hard to avoid attacks from hedge funds.]
"I think you're right."
Seok-won continued with a calm voice.
"There will be movements soon. Keep a close watch on the hedge funds, and if we notice any signs, report it immediately."
[Understood.]
After ending the call, Seok-won walked over to the large floor-to-ceiling window in his office.
The sunset was now casting a red glow between the towering buildings, and the sky seemed to predict the bleak future.
TL/n -
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