Since public-sector debt sharply rises mainly from public institutions, the National Assembly and the public pay close attention to this issue. Furthermore, the credit rating firm Moody’s is expected to assign different assessments to be applied to Korea and Korean public institutions, so the fiscal soundness of public institutions has become an issue of concern again.
On one hand, according to established law, public institutions carry out major designated projects and raise funds that are needed for projects through a variety of methods. However, recently, financial debts have expanded from public institutions by reaching over 245.5 trillion won in 2011, which is 1.5 times larger than 96.6 trillion won in 2006.
In this report, NABO comprehensively evaluates the legal basis of raising financial debt, decision-making systems related to financial debt, and issuance limits in terms of public institutions’ fiscal soundness. Evaluation results pointed out various problems. First, government’s contingent liability arises because public institutions issued bonds under impaired capital. Second, public firms obtain loans without concrete legal basis. Third, high bond issuance limits have caused financial risk or contingent liability risk. Fourth, since there is no limit on increasing financial debt, preemptive safety measures, coupled with financial soundness, was not prepared.
Therefore, overall review and inspection on related regulation for financial debt are required in order to implement major projects together with maintaining concrete financial structure. Furthermore, in case of need, stricter limits on financial debt should be introduced toward revising law.
Lee Eunkyung
On one hand, according to established law, public institutions carry out major designated projects and raise funds that are needed for projects through a variety of methods. However, recently, financial debts have expanded from public institutions by reaching over 245.5 trillion won in 2011, which is 1.5 times larger than 96.6 trillion won in 2006.
In this report, NABO comprehensively evaluates the legal basis of raising financial debt, decision-making systems related to financial debt, and issuance limits in terms of public institutions’ fiscal soundness. Evaluation results pointed out various problems. First, government’s contingent liability arises because public institutions issued bonds under impaired capital. Second, public firms obtain loans without concrete legal basis. Third, high bond issuance limits have caused financial risk or contingent liability risk. Fourth, since there is no limit on increasing financial debt, preemptive safety measures, coupled with financial soundness, was not prepared.
Therefore, overall review and inspection on related regulation for financial debt are required in order to implement major projects together with maintaining concrete financial structure. Furthermore, in case of need, stricter limits on financial debt should be introduced toward revising law.
Lee Eunkyung