Soaring public sector debt
Concrete debt reduction plans needed
The soaring pace of public sector debt, which refers to borrowings owed by public corporations and agencies, has been alarming. It has raised fears that the country, already struggling with bloated national and household debt, might become the ``Republic of Debt.’’
Money owed by Korea’s public sector surpassed the national debt last year for the first time since 2007 when the government began compiling relevant statistics. The country’s 286 public corporations and agencies recorded 463.5 trillion won ($409.4 billion) in debt as of the end of 2011, up 15.4 percent from the previous year. National debt was tallied at 420.7 trillion won.
The hike was attributed largely to the fact that public companies shoulder the burden on behalf of the government. Specifically, the Korea Deposit Insurance Corp. saw its debt swell by 13.3 trillion won owing to its support for insolvent savings banks and the Korea Land and Housing Corp.’s (LH) debt expanded by 9 trillion won due to outlays for public apartments, the creation of Sejong City and the four-river restoration project. The Korea Water Resources Corp. (K Water) also witnessed a rise in what it owes of 4.5 trillion won.
Such public corporations as Korea Electric Power Corp. (KEPCO) and Korea Gas Corp., that were unable to raise their utility rates due to the effect on people’s livelihood, suffered an increase of 10.4 trillion won and 5.7 trillion won in debt respectively last year.
The skyrocketing public sector debt adds fuel to our looming concerns on household debt. Household debt amounted to about 912 trillion won at the end of March, reaching nearly 80 percent of our gross domestic product. More worrisome is the fact that advanced countries have been reducing household debt since the financial crisis shook the world in 2008, whereas Korea’s has been increasing.
It’s regrettable that public sector debt has jumped by a whopping 214 trillion won during the four years of the Lee Myung-bak administration.
Government officials dismiss fears on debt, saying public companies’ assets (about 699 trillion won) are larger than their liabilities. They also explain that much of the swelled debt was devoted to overseas resources projects and productive infrastructure programs.
Nonetheless, the government should not be complacent because the public sector debt must be paid by the government if the relevant public companies are unable to do so.
The government should oblige public corporations to come up with blueprints highlighting concrete plans to cut what they owe. These blueprints must be reviewed and deliberated by the government and the National Assembly carefully.
In the lead-up to the Dec. 19 presidential election, the political circle should refrain from promising large pork-barrel projects. In this respect, a plan to create a new airport in the southeastern region must undergo serious scrutiny.
Poorly-managed public companies, for their part, should conduct restructuring. While ordinary people wrestle with low wages, the average annual salary at public companies reached 71 million won last year.