By Na Jeong-ju
Incheon City’s plan to construct a main stadium for the 2014 Asian Games is being thrown into question as the local government is under pressure to curtail spending on large-scale development projects due to mounting debt.
The city’s debt has surpassed 3 trillion won ($2.66 billion) to date, compared with 1.4 trillion won in 2007, although its tax revenue has remained almost flat during the same period. The city has issued more bonds in recent years to finance multi-billion dollar construction projects despite the sluggish property market.
The city is feeling the damage from its reckless expansionary fiscal policy. On Monday, the city government couldn’t pay some 2 billion won in wages on time to 6,000 civil servants and contract workers. It gave 500 million won later in the day and paid the remaining sum Tuesday.
City officials dismissed the allegations of a liquidity crisis, saying the delayed payment resulted from a short-term funding crunch. However, experts warn that its bottom line could worsen further, forcing it to downsize or cancel ongoing projects, including the construction of the main stadium for the Asiad.
This was the first time that a metropolitan city delayed payment to staff, although in the past some smaller municipal governments paid wages belatedly.
Incheon initiated a series of mammoth projects under former Mayor Ahn Sang-soo.
It spent more than 85 billion won to set up a railway connecting Incheon Station to Wolmido in preparation for the 2009 Global Fair & Festival, but its operation was suspended after the event due to faulty construction.
It’s now pouring money into building a new subway rapid transit system ahead of the 2014 Asian Games. The 3-trillion-won project was originally planned to be completed in 2018, but the city shortened the construction period after being chosen as the host of the Asiad.
Incheon also plans to spend 500 billion won to construct the main stadium. The central government initially asked Incheon to renovate the Munhak Stadium, which was one of the venues for the 2002 FIFA World Cup, to use as the main stadium for the Asian Games. The city, however, rejected the proposal and opted to build a new one.
The city now says it is impossible to construct the main stadium without support from the central government. Its excuse is that the Asiad is not just the city’s event, but a national one that attracts tens of thousands of international guests.
Civic groups have called on Incheon to give up the hosting rights for the Games.
An alliance of civic groups based in the city held a press conference Monday to denounce its handling of the budget shortfall and call for belt-tightening efforts.
“If Incheon hosts the Asian Games with its own budget, it will surely go into bankruptcy. It is better to give up the hosting rights for the benefits of citizens,” the alliance said in a statement.
The liquidity concern in Incheon, just west of Seoul, raises the question: Are other local governments safe from financial trouble?
In 2010, Seongnam City, located on the outskirts of Seoul, declared a debt moratorium on some 520 billion won it borrowed from the central government to build a new residential complex. It was the first time in the country’s history that a local government declared a moratorium on its debt. The effects of the decision on the market, however, were not great it was seen as a politically-motivated act by a newly-elected mayor.
The Ministry of Public Administration and Security said it will strictly limit local governments with poor financial health from issuing bonds and starting new projects. Following the incident in 2010, the ministry set up a “debt alarm system” to monitor local governments’ finances and predict any fiscal problems in advance.