Public companies’ debts are steadily developing into a possible time bomb for the Korean economy. Given that this debt is tantamount to national debt, the government needs to take preemptive extraordinary measures.
According to the Ministry of Strategy and Finance, the combined debt of the nation’s 28 major public firms amounted to about 393 trillion won at the end of last year, up 8.7 percent or 31.5 trillion won from the previous year.
The figure represents more than a six-fold increase from 2002 and is close to the national debt of 445.2 trillion won. Their average debt ratio reached 190 percent, up from 175 percent at the end of 2011.
The Korea Land and Housing (LH) Corp., the state-run land and housing developer, topped the debt ranking with 138.1 trillion won, followed by Korea Electric Power with 95.1 trillion won and Korea Gas with 32.25 trillion won.
It’s not difficult to understand why public firms’ debt has swelled in the recent decade. First of all, LH and some other public firms carried out mammoth state projects at the request of the government that has had to pay keen attention to critical public opinion about the rapid rise in the national debt.
The government’s rigid regulation on public utility rates such as electricity charges is also cited as another reason that has bloated public-sector debt. The government tends to keep public service charges low under the pretext of stabilizing prices and protecting the vulnerable, but in many cases these government moves are politically motivated. The result is the snowballing rise of public-sector debt, which must be shouldered by taxpayers’ money, and a waste of valuable resources.
In this regard, the Park Geun-hye administration needs to set itself apart from previous administrations by raising public service rates appropriately on time in accordance with market principles. It’s commonly the working class that suffers most from the delay in public utility readjustments.
Considering that credit rating agencies began to rate public firms separately from the central government last year, the ultimate responsibility for public firms’ debt rests with the government. In this context, the government needs to clarify the amount of debt caused by state projects and manage it more stringently.
Needless to say, lax management at public firms must be rectified quickly and there should be no more "parachute appointments’’ at these corporations. Talk of privatizing state firms has almost vanished but the fundamental remedy to these public debt woes would be to revive the momentum of privatization in the public sector.