By Lee Hyo-sik
Staff reporter
The Ministry of Land, Transport and Maritime Affairs said Wednesday that Seongnam City should have not declared a debt moratorium on 520 billion won ($430 million) it borrowed from the central government to finance a residential development project, saying the city is financially able to meet all of its outstanding debts.
But the largest city in Gyeonggi Province continues to insist that it has no other choice but to declare bankruptcy because it cannot spend its entire budget on the Pangyo residential development, adding it will issue municipal bonds worth 100 billion won each year for the next three years and save tens of billions of won in its general budget to pay off the debt.
The ministry said after consulting with officials from Gyeonggi Provincial Government, Seongnam City and Land & Housing (LH) Corp, it found that the municipal city only has to pay LH Corp. 35 billion won this year for infrastructure development in Pangyo. It said the city has about 70 billion won in a special budget account specifically for Pangyo development, which is enough to cover this year's costs.
``It is unfortunate that Seongnam City declared a debt moratorium without prior consultation with us. The city will spend the maximum of 230 billion to build roads and other urban infrastructures in Pangyo through its completion. But it needs to pay the costs in phases over the next few years,'' a ministry official said.
He said the city will also be required to pay the central government some 290 billion won in the name of profit sharing as it financially benefits from the development of the new residential town. ``But it is expected to earn more than 200 billion won from selling land and other properties to LH Corp. and real estate developers. Given all these factors, Seongnam is not in such dire financial trouble as to declare a debt moratorium.''
However, Seongnam City argue that out of its 230 billion won in infrastructure development costs, it will have to pay LH Corp. 140 billion won by the end of this year, adding the government could ask it to pay the entire 520 billion won this year.
``We do not yet know the exact amount that we will have to pay LH Corp. But the bottom line is we cannot afford to spend tens of billions of won this year as a result of falling tax revenues amid sluggish real estate transactions. We don't think that we will be able to spend over 100 billion won from 2011 to build the necessary infrastructure in Pangyo,'' a senior city official said.
The official said the city will issue municipal bonds worth 100 billion won each year over the next three years, totaling 300 billion won, and save 500 billion won each year in its budget to pay for the Pangyo development costs.
On Monday, Seongnam City Mayor Lee Jae-myung said the city must pay back 520 billion won to the central government and LH Corp. by the end of the month, saying the city cannot afford to do so at the moment.
Lee said his predecessor Lee Dae-yeop borrowed 520 billion won from the central government and spent most of it to build a luxurious city hall, parks and roads during his four-year mayorship, leaving the city no money for the Pangyo development.
Some critics raised doubts over Lee's remarks, calling the declaration of the moratorium a "politically-motivated act." They claim the mayor, a member of the major opposition Democratic Party who took the job after defeating his predecessor from the ruling Grand National Party in the June 2 local elections, made the decision to deal a blow to the Lee Myung-bak administration.