Seoul to Put Public Debt Under Microscope
By Lee Hyo-sik
Staff Reporter
A senior finance ministry official said Friday the government will make every effort to curb the debts of state-run enterprises, admitting that snowballing public sector debt has become a major headache for the Korean economy.
Vice Strategy and Finance Minister Hur Kyung-wook also said the debt crisis currently engulfing Greece and other southern European countries will have limited impact on Korea.
``Internationally, the liabilities of public companies are not tallied in the national debt. But they have accumulated excessive debt over the years. We will closely look into liabilities and other financial figures when we evaluate their performance,'' Hur said.
Public firms here have become saddled with huge amounts of debt over the years as they have been mobilized to undertake a number of state development projects on behalf of the government. The government has become reluctant to inject taxpayer money into public works directly out of the state coffers as it has a negative effect on fiscal soundness.
Instead, it forced state-run companies to raise funds through bond issuance and engage in an array of infrastructure development schemes.
For instance, the Korea Water Resources Corp. was instructed last year by the Lee Myung-bak administration to spend eight trillion won to refurbish the nation's four major rivers and 2.1 trillion won to construct a canal linking Seoul and Incheon.
Additionally, public firms' inefficient management and excessively generous compensation packages for their executives and some employees ― despite suffering huge financial losses ― have further raised their debt levels. The combined debts of 297 public enterprises were estimated to reach 377 trillion won as of the end of last year.
The vice minister also said that domestic financial institutions extended a combined $2.6 billion to companies in Greece and four other southern European economies that are saddled with huge fiscal deficit, stressing that the debt problem in Europe will not negatively affect Korea.
``Korea's national debt reached a level equivalent to 36 percent of its gross domestic product (GDP) last year. Our debt-to-GDP ratio is much lower than those of other advanced economies,'' Hur said, dismissing growing concerns over the deteriorating fiscal soundness here.
The country's fiscal health has recently come under the spotlight, with that of southern Europe appearing on the verge of collapse under snowballing debt.
The government has been outspending its earnings for the past decade in an effort to bolster the nation's social safety net and other welfare-related programs amid the rapidly-aging population and falling birthrate. Additionally, it has been forced to spend more to boost domestic demand in the aftermath of the global economic crisis.
Korea's state debt reached 366 trillion won in 2009, accounting for 35.6 percent of its domestic output. It was less than half of the G-20 average of 75.1 percent, but the debt-to-GDP ratio is widely expected to go up at a fast pace in the future, with the nation having to spend more to care for the growing elderly population and to raise the birthrate.