By Na Jeong-ju
The heavy debts at public firms are emerging as a key downside risk for Korea Inc.
Analysts say the government should restructure their debt before it is too late and introduce more competition-oriented programs to help them stand on their own feet.
The capabilities of their CEOs ― mostly former politicians and bureaucrats who lack management skills ― are also in doubt.
The latest report from the Bank of Korea suggests the problem has reached a point of threatening the country’s fiscal health.
The central bank said Wednesday that public sector debt almost doubled to 915 trillion won, more than twice the government’s yearly budget, under the previous Lee Myung-bak administration.
That’s mainly because the administration passed the burden of budget deficits onto state firms while pushing ahead with massive public engineering programs, including the controversial four-river refurbishment project.
The public sector includes central and provisional governments and state-run companies.
The debt held by public firms more than doubled to 400.8 trillion won as of the end of March, compared with the end of March 2008, the report showed.
While the firms’ debts were rising, their combined total assets slightly decreased from 206.8 trillion won to 206.7 trillion won. Thus, their debt ratio, indicating the percentage of assets that are provided via debt, jumped from 174.7 percent to 190.1 percent.
Eight firms accounted for 92 percent of the total debt. They are the Korea Land and Housing (LH), Korea Electric Power Corp. (KEPCO), Korea Gas Corp., Korea Expressway, Korea Hydro and Nuclear Power Corp., Korea National Oil Corp., Korea Railroad (Korail), and the Korea Water Resources Corp. (K-water).
The Korea Institute of Public Finance recently cautioned that large state-initiated projects and high state subsidization of production costs of public services are worsening the fiscal health of the state firms.
“The government needs to have citizens pay a higher level of public service fees to resolve the debt issue,” the institute said in its report.
Experts say the public firms are also required to conduct their own restructuring programs.
According to the Financial Supervisory Service, the average annual salary for staff at nine public financial firms was 87 million won in 2012, about 24 percent higher than that for Samsung Electronics employees.
The amount is also 16 percent higher than the average salary paid by private financial companies, such as banks, insurers and credit card issuers.
“The high paychecks for employees of public financial institutions need to be reconsidered because they enjoy high job security,” a source from a private bank said.
What’s more important is that their debts not only aggravate their bottom lines, but also puts strict restraints on the next government’s fiscal policy and eventually leads to a heavier burden on taxpayers.
In addition, the growing spending on welfare programs, and jitters over the high levels of household debt are weighing down on the country’s fiscal status.
Sharp growth in debt by state-run firms has been cited as one of the potential risks for Korea, but it is not tallied as government debt when calculated under the latest international standards.
Mindful of criticism over statistical inaccuracies, the Ministry of Strategy and Finance said in February that Korea plans to provide additional figures on public debt including public firms’ holdings in a bid to offer a more accurate picture of the financial condition of the public sector.