A number of opinion leaders in the country's academic and business circles are cautiously suggesting that the Korean private sector businesses should ask overseas creditors to forgive part of their debts. Such suggestion was reinforced by US Treasury Secretary Rubin’s statement made at the end of last month that international creditors need to consider restructuring their loans to newly industrializing countries in Asia. However, there are many who are opposed to that suggestion for fear of potential backfire.

Private sector companies who borrowed money recklessly from foreign banks are to blame to begin with. However, those foreign banks who lent money recklessly to the Korean private sector companies should be held responsible as well.

Pros: One of the primary rationales behind the loss-sharing request is that the country's businesses can expect virtually no hope of regaining their profitability unless their foreign debts are reduced at a time when a base for domestic sales is crumbling down and the export outlook is bleak. The overhang of debt will continue to drag the Korean economy. Ph.D Choi Gong-Pil of the Korea Institute of Finance argued that we should take advantage of the current situation where there is a move to establish an organization in developed countries exclusively responsible for buying loans from newly industrialized countries. He said we must get supports from overseas creditors as Korean financial institutions are doomed to suffer greatly in the course of the Korean companies’ efforts to reduce debt-equity leverage ratios from 600% to 200%. Ph. D Kim Jun-Kyung of KDI also asserted that the loss-sharing principle should be equally applied to both domestic and overseas financial institutions in view of the fact that Korean Chaebols are paying back their loans to foreign creditors by borrowings from Korean banks, which will result in incremental burden on the part of tax payers. Mr. Kim Soo-Ryong, former Managing Director of Chase Manhattan Bank, suggested that it is wise for Korea to offer a menu of options inducing a voluntary debt reduction from international creditors. The menu of options should include debt-for equity conversion (swap). Mandatory debt reduction is risky and detrimental to the long-term interest of Korea. Therefore, he said the menu of options would allow banks to pursue alternatives and yet continue to lend new money to Korea.
Cons: Many experts, however, counter the idea of making a request for foreign debt forgiveness as they are deemed risky and detrimental to national interest. Korean Government is taking a firm stand against making the subject an issue for fear that the suggestion may arouse tension among overseas creditors. It is the Government’s conservative position that it will follow the general trend only after the issue of debt forgiveness progresses internationally. Ph.D Lee Jang-Young of the Korea Institute of Finance says such an argument could only be detrimental to Korea’s credibility now that the economy appears to be on the road to recovery. He argues we should hold back the issue until we face a stark reality where Korea becomes absolutely insolvent. Prof. Cho Yoon-Je at Seogang University’s International Graduate School says it will only do more harm than good to request for loss-sharing since it may block the capital inflow from abroad. He also suggests that the companies in the private sector must deal with its own problems with overseas creditors individually. Mr. Park Jin-Hee, Director of Citibank Seoul warned a sudden demand for debt reduction would give a wrong signal to international creditors that Korea’s economy is in a dire situation and the government’s commitment for the economic restructuring will be questioned. Mr. Bizan Agebli, Head of the IMF Policy Committee asserted such a discussion for loss-sharing is inappropriate as the economy is able to manage the current size of foreign debt.