By Lee Hyo-sik
Staff Reporter


The government on Friday unveiled programs to reinvigorate the struggling venture industry as part of steps to stimulate the economy, boost growth potential and create more jobs at the risk of creating a moral hazard and breeding corruption.

The government’s new support plan includes measures to set up a state fund of 1 trillion won ($952 million) to assist venture startups and encourage local banks and venture capital firms to provide essential funds to promising venture businesses.

Under the program, failed venture companies would be able to get into a state-sponsored rehabilitation program and the Kosdaq stock market would become an exclusive bourse for venture startups and small companies, according to the Ministry of Finance and Economy (MOFE).

The daily limit on stock price changes is expected to increase to 15 percent of share prices from the current 12 percent, and shareholders of less than 5 percent in the Kosdaq-listed venture firms will be exempted from paying capital gains taxes when they sell shares.

The plan will also make it easier for the Kosdaq market to enforce the delisting of nonviable venture firms and strengthen monitoring of stock price manipulation and corporate disclosure.

In addition, new listed venture companies will not be required to pay corporate income tax for 30 percent of their net profits, the MOFE announced.

However, many critics said that the government failed to include new measures in its venture support package as it is not much different from that of the previous administration.

They pointed out an absence of an effective regulatory and monitoring regime in managing the 1-trillion-won state fund.

They contended that unless the government first comes up with the effective tools to assess the venture companies, it may repeat the same mistake of wasting the large amount of state funds as the past administration did.

It makes no sense that the government will decide which venture companies will be given a second chance through the rehabilitation program as the exit and entry of firms should be up to the market, they added.

They also pointed out the rehabilitation program could increase moral hazard among the venture companies and distort the efficient distribution of resources in the economy.

The previous Kim Dae-jung administration had promoted the venture companies as part of its master plan to revitalize the economy following the 1997-1998 Asian financial crisis.

However, the Kim administration failed in fostering the venture industry as an economic growth engine since the administration lacked a systematic mechanism to select and support competitive and viable companies.

Due to the inappropriate regulatory scheme, the administration also wasted an enormous amount of taxpayers’ money provided to venture firms as many companies misused and diverted the money into other purposes.

Many banks had also extended credits to the venture industry during the booming period but had to shoulder a significant amount of non-performing loans when the massive number of venture businesses collapsed.

According to government estimates, some 10,000 venture companies have failed since 1997 and as of November this year, about 7,400 venture companies were still in operation.

leehs@koreatimes.co.kr