Lee hints at restructuring of public firms run by local gov’ts

By Na Jeong-ju

Staff reporter

President Lee Myung-bak called for a thorough examination of the financial conditions of public firms run by local governments, Tuesday, saying they have not been monitored properly compared to those observed by the central government.

The instruction suggests a sweeping restructuring of public firms located in provincial areas amid growing worries about surging debt at municipal governments.

“We need to check whether the firms under the wing of 16 local governments are financially stable. Even though they are monitored by the local governments, we should examine whether they are meeting guidelines set by the central government,” Lee said during a Cabinet meeting.

The snowballing debts of local governments have become an issue of public debate since Seongnam City in Gyeonggi Province declared a moratorium on some 520 billion won ($430 million) of debt last week.

The city claimed the deficit was a result of years of excessive engineering projects initiated by the central government and the construction of a luxurious city hall last year.

The city’s new mayor, Lee Jae-myung of the main opposition Democratic Party, who took office on July 1, vowed belt-tightening measures to improve Seongnam’s financial health.

However, the administration criticized the mayor for being overly leftist and irresponsible, saying the city was not in such a serious condition.

“Regardless of the controversy, the government plans to strengthen the monitoring of public firms run by provincial governments as part of efforts to manage state debts,” an official from the Ministry of Strategy and Finance said.

According to government figures, local governments reported a combined account surplus of 20.2 trillion won in 2008, but swung to a deficit of 7.1 trillion won in 2009, due mainly to excessive spending on housing projects and tax cuts implemented by the central government.

Many local governments have relied on issuing municipal bonds to ease their financial troubles.

Bonds issued by municipal governments last year were worth a combined 4.73 trillion won, adding up to 11.47 trillion won since 2007. About 1.65 trillion won worth in municipal bonds were issued just through March of this year.