What do you usually do on weekends? Parents with infants and toddlers, office workers who want to get away from work, and students who want to play with their friends often make plans to go somewhere on weekends to have a special day, not an ordinary day. There was good news for these people on May 5, 2022. It's the news of the opening of Legoland. The opening of the new theme park, full of colorful colors, gave many people excitement and anticipation. But not long after its opening, articles began to appear that Legoland had caused an economic crisis. From now on, let's take a step-by-step look at how Legoland caused the economic crisis.
Beginning of Korean Legoland Incident
Lego Land is a theme park with a variety of things to enjoy, including shopping and lodging, as well as appreciating works made of Lego, a block toy, and experiencing Lego-themed rides. Lego Land began in 1968 in Billund, Denmark, where Lego's headquarters are located, with Lego's founder son displaying Lego works in glass galleries outside the factory for anyone to see. As people flocked to see the Lego works on display, they started to create a small garden-sized theme park where they could show more Lego works, and later it became a theme park Lego Land with the addition of rest and amusement facilities. Since then, Legoland has been operating in many countries around the world, including Britain, Germany, the United States, Malaysia, the United Arab Emirates, and Japan, and is gaining popularity regardless of gender or age.
The story of the Legoland case dates back to 2010. Lego is made by a Danish toy company, but the theme park, Lego Land, is owned by a British company called "Mullin Entertainment Group," and a company called Merlin Entertainment Group, promoted the construction of Lego Land in Korea. Lego Land is already a theme park guaranteed to be popular in many countries around the world, and Lego is also popular in Korea, so at that time, expectations were high that many tourists would flock to it when Lego Land was built in Korea. Due to high expectations, various local governments actively participated in the bid to attract Legoland when the Korean Legoland construction plan was announced. After a year of fierce competition, Gangwon Province won the business right in 2011, and in 2012, it established a company called Gangwon Midway Development Corporation (GJC) for the Lego Land project and began preparing for the Lego Land construction in earnest. Lego Land is owned by Gangwon Province, but Gangwon Province spared no support, saying it would lend the site for free for 100 years. The reason why Gangwon-do did not spare such support is that it had a plan to quickly complete the construction and open Legoland in 2015 to attract tourists.
Korea's Legoland Problem Occurred
Contrary to Gangwon-do's plan to attract tourists with the rapid opening of Legoland, unexpected events have occured one after another. The first was the discovery of large-scale prehistoric ruins at the construction site in 2014 when Legoland was under construction. The prehistoric remains found at the Lego Land construction site were the largest among the prehistoric remains found in Korea. At the time of the discovery, scholars were excited, saying, "An unbelievable scale of remains has been found," and expect it to be of great help to prehistoric research. "It is the first time that a dolmen has been identified and excavated on such a large scale in Gangwon Province," said five cultural heritage-finding institutions, including the Han River Research Institute. "It will also help to compare and study non-wave bronze swords and bronze axes." The excavation of prehistoric relics was a great blessing for academia studying the prehistoric era of the Korean Peninsula, but it was difficult for the GJC, which was building Legoland. The construction should be stopped because the ruins should not be damaged. Some even argued that the construction of Legoland itself should have been completely abandoned. Eventually, construction was suspended for three years, during which the GJC promised to move the location of Legoland a little and changed the design of the amusement park to minimize the damage to the ruins. Only after making these promises could the construction resume, and this was in 2017. In the end, Gangwon-do changed its goal of opening a Lego Land theme park to 2020 instead of 2015.
Unfortunately, however, the COVID-19 incident broke out shortly after the Legoland construction resumed. It was not appropriate to open a new theme park at a time when social distancing was in full swing, and construction work was also difficult to proceed normally. Due to these twists and turns, Legoland was able to open on May 5, 2022, seven years later than originally planned. But the real problem has arisen since then. As the construction period was extended, GJC's debt increased too much in the meantime. According to the Financial Supervisory Service, GJC had a debt of 101.1 billion won in 2016 but increased 2.5 times to 258.7 billion won in 2021. The key point of the Lego Land case is that 20 billion won of GJC's massive debt was borrowed from a securities firm. The GJC issued bonds to borrow money, and you can think of it as an IOU that's issued to borrow money. Bonds can be bought and sold as if they were stocks with promised documents with conditions such as when, how much, and when to pay back the principal when borrowing money. In the process, Gangwon Province, which established GJC to dispel investors' concerns that "Lego Land construction has been delayed several times and is it safe to invest in these bonds?" came forward to provide guarantees. In short, Gangwon Province guaranteed investors to invest with confidence because Gangwon Province will take responsibility if anything happens to Legoland's progress and GJC's debt performance.
Korea's Lego Land Crisis Rises
However, an important change occurred in Gangwon-do in June 2022, a month after Lego Land opened. A new governor was elected after his previous term as governor of Gangwon-do Province ended. Kim Jin-tae, the new governor of Gangwon Province, has made several remarks since he was a candidate, saying, "There are many problems with Lego Land," and pointed outlining Lego Land. Gangwon Province Governor Kim Jin-tae said after taking office, "We will review the Lego Land project from the beginning," adding, "There is a high possibility of an economic crisis and there is not enough storage in Gangwon Province. If Legoland fails to pay off its debts, it should not happen, and this causal relationship is difficult." On September 28, 2022, Gangwon-do Governor Kim Jin-tae said, "We decided to apply for corporate rehabilitation to the court to prevent Gangwon-do Province from paying 205 billion won on its behalf," declaring that he had no intention of paying off GJC's debts. Corporate rehabilitation is a system that gives companies that have a lot of debt and have a chance to make a comeback. When the Aldan corporate rehabilitation process begins, the court leading the rehabilitation process asks the borrowers to stop urging them to pay back the money, so they do not have to pay back the borrowed money for the time being. And it significantly reduces the debt that companies have to pay off, usually by over 50%. Instead, companies undergoing rehabilitation procedures should raise money to pay off their debts by streamlining management and selling various assets. In some cases, other companies appear and take over companies undergoing rehabilitation procedures. Although it was a company that suffered financial difficulties, it may seem like an attractive investment destination because its debt has decreased. In the end, Gangwon Province can be seen as wanting someone to take over GJC and sell various assets to pay off their debts with the money. As a result, Gangwon Province avoided economic losses, but investors who trusted Gangwon Province and lent money are highly likely to lose money. This is because even if you have money to receive right away, you cannot be urged because you applied for the corporate rehabilitation process, and you do not know whether you can receive all the money you lent.
The conclusion of the Korean Legoland case
The problem with the Legoland incident is not only that investors who invested in GJC suffer losses. The first drop in the credibility of local governments is a drop in confidence in local governments. There are many ways to raise money when local governments like Gangwon-do do various projects. It can be covered by its own budget, and if it is short of budget, it can collect more taxes, and borrow money from outside, as in the case of Legoland. However, the trust in local governments has declined in the wake of the Legoland incident, making it difficult for local governments to borrow money in the future, leaving only a way to collect more taxes as a way to raise money. The bigger problem here is that companies are getting younger to raise the funds they need for their businesses. As GJC did in the Lego Land case, ordinary companies issued bonds and borrowed money to raise funds. As concerns about the economic downturn are growing these days, fewer people are willing to buy bonds issued by companies and lend money, and investors are more likely to think, "aren’t bonds issued by ordinary companies more dangerous at a time when the economy is difficult and local governments change their positions?" Uncertainty and distrust spread, making it difficult to raise funds for high-credit public corporations such as Korea Electric Power Corp. and Korea Expressway Corp. and low-credit small and medium-sized companies are falling due to the seriousness of the situation.
The second is that the combination of interest rate hikes and concerns over an economic slowdown has had a big impact on the market, which has had a negative impact overall. In fact, interest rates on bonds issued by domestic companies have been rising since the Lego Land crisis, and companies now have to pay more interest even if they want to borrow the same money as before the Lego Land crisis. This has also affected the real estate and construction sectors. As a representative example, the reconstruction association of Dunchun Jugong Apartment in Gangdong-gu, a super-large reconstruction complex in Seoul, has failed to raise funds, putting construction companies in a situation where they have to raise funds themselves. Given the situation of reconstruction of Donchun Jugong, a blue-chip workplace, it is predicted that small and medium-sized construction companies with poor cash mobilization as well as securities firms that gave guarantees could go bankrupt. Moreover, instability in the bond market has led to credit card companies reducing installment benefits or foreign investors leaving the Korean financial market. In summary, the current Legoland crisis is a situation in which the credibility of local governments, which can be said to be part of the country, has increased the burden on the people due to a series of effects, and various companies and businesses have faced bankruptcy.
The government eventually took measures from the collectors and started to evolve the Lego Land crisis. The government will invest 50 trillion won in the bond market to buy corporate bonds, supply funds to securities firms, and guarantee real estate businesses that lack funds in the short term. This is the fifth time that measures aimed at stabilizing the bond market have been implemented. Considering that the previous fourth case was the breakup of Daewoo Group in 1999, the collapse of the IT bubble in 2000, the global financial crisis in 2008, and COVID-19 in 2020, we can see how serious the Legoland crisis is. The government also asked South Korean financial firms Big5 (KB, Hana, Shinhan, Woori and Nonghyup) to help resolve the economic crisis caused by Legoland. In response, the Korean financial company Big5 announced that it would spend 95 trillion won to stabilize the financial market together. Kim Eun-ki, a senior researcher at Samsung Securities, said, "If the policy direction is set well, there will be no clear results in the short term, but economic instability will gradually be resolved." As such, there is a positive assessment that the government's intervention will set the mood of the unstable domestic economic market. However, some point out that the government moved late, and there is a strong criticism that it is difficult to subside quickly because fear has already spread in the market, and that Gangwon Province Governor Kim Jin-tae's wrong decision has caused a crisis. Kwon Hyuk-se, former head of the Financial Supervisory Service, said, "I think it was a little late for the financial authorities to respond knowing the seriousness," adding, "It will be difficult to deny responsibility for not preventing it in advance as it is the ruling party news."
The Lego Land incident, in which deep faith in local governments was broken and the entire financial market was shaken. This financial crisis started with a loss of credit. Local governments and governments are attempting to rebuild trust by promising that this will never happen again. Trust may be a rather superficial and abstract word in today's capitalist society. However, if you think about it differently, isn't trust, a rare value that has become rare in these days, a word that should exist in our society as a progress beyond the economy?
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