By Kim Tae-jong
The Korea Land & Housing Corp. (LH), the state-run land and housing developer, remains a serious threat to the nation’s fiscal health due to its snowballing debts, data showed Thursday.
According to the Bank of Korea, public firms’ debts jumped by 200 trillion won during the four years of the Lee Myung-bak administration, which brought outstanding debt to 540 trillion won as of last year. The figure compares with 325.4 trillion won earmarked for the 2012 national budget. Last year’s gross domestic product was estimated at 1.17 quadrillion won.
It was the first time for outstanding debts of public firms to exceed 500 trillion won.
The total is higher than reported if including bonds issued by financial public firms such as the Korea Finance Corporation, and industry sources also expect it will surpass 600 trillion won by the end of the year due to large-scale development projects underway.
Of the public firms, LH has topped the indebtedness list for the past few years in a row, accounting for the largest portion in public firms’ total debt.
LH’s debt reached 98 trillion won last year, which has been on a sharp increase ― 91 trillion won in 2010, 75 trillion won in 2009 and 55 trillion won in 2008. The proportion of debt to assets soared to about 470 percent last year. It now spends about 10 billion won each day on interest payments alone.
The firm is seriously indebted because it has undertaken various projects prescribed by government policy such as the national rental housing project. Corporations launch public projects on behalf of the government.
To improve its finance health, the Ministry of Land, Transportation and Maritime Affairs has announced a series of measures since 2010 and provided various subsidies, despite mounting public criticism on wasting taxpayers’ money.
Critics argue that the government’s fiscal infusion simply aims at covering lax management by public firms due to its populism-oriented development projects.
In response, the state-run land and housing developer emphasized their business will be normalized, saying structural reform will see it get back on track.
“We are trying to contain the debt problem by making adjustments to the projects, downsizing, cost-cutting and decreasing the number of employees,” an official from the ministry said.
But he admitted that they face fierce opposition from lawmakers with development projects in their electorate ahead of major elections this year.
“Because we have to push a number of massive public projects such as building the new Sejong City and Innovation City, we don’t think there will be a sharp drop in the volume of total debt in the near future,” he said.
LH was established by a merger of the Korea National Housing Corporation and the Korea Land Corporation in 2009 to try and improve competence. Even before the merger, they had suffered from a large amount of debt, which resulted from competition between the two in overlapping business.