KDI “The cause of the government’s implied payment guarantee… should include government bonds and national guarantee debts”
“The bigger the function of the public institution, the more the debt scale ↑…it is difficult to compare between countries.”
It was found that the debt of non-financial public corporations in Korea was the second highest among the 33 countries of the Organization for Economic Cooperation and Development (OECD) for which estimates exist.
In fact, it is pointed out that such public corporation debt is in a blind spot in management, as the government has no choice but to take responsibility in case of emergency.
On the 20th, researcher Hwang Soon-ju of the Korea Development Institute (KDI) released a report on’Measures to Improve Public Enterprise Debt and Public Corporation Bond Problems’.
The report cited last year’s estimates from the International Monetary Fund (IMF), and reported that the debt of Korean non-financial public enterprises recorded 23.5% of GDP as of 2017.
This is the largest of the 33 OECD countries for which estimates exist except for Norway, which has far more assets than the government and public enterprises combined.
Not only did it significantly exceed the average of 33 countries (12.8%), the gap was also wide with Japan (17.2%), which has a large amount of debt from the public sector as a whole.
In particular, it was more than the key currencies of Britain, Canada, Germany, France and Japan.
Although the IMF estimates are not official data according to international standards, even using official data from the IMF and the World Bank, Korea’s non-financial public corporations’ debt was 20.6% as of 2019. It was higher than other countries.
The high debt of public financial enterprises was also a feature of Korea.
As a result of researcher Hwang’s estimation of the debt of public financial enterprises according to the international standards of the IMF and the World Bank, the debt of public financial enterprises in Korea recorded 62.7% of GDP, which is far higher among the eight comparable OECD countries.
In 2019, the proportion of non-financial public corporations to general government debt was 48.8%, the largest among eight countries.
It was also characterized by the fact that it was a debt that was mainly generated by the method of issuing public bonds, and researcher Hwang analyzed that the cause was’the government’s implicit payment guarantee’.
Bank loans usually require collateral, so there is a limit to the amount of funds that can be raised, but public bonds can be issued on a large scale if they have high creditworthiness.
Korean public enterprises are almost always recognized for their best credit rating regardless of their own fundamentals such as soundness and profitability. This is because of the belief that the government will go ahead and pay the principal and interest of the bonds if it is likely to go bankrupt.
As such, due to the government’s implicit payment guarantee, public bonds are issued at a lower interest rate than private corporate bonds, and the resulting rate discount effect is analyzed to reach about 4 trillion won per year.
Researcher Hwang pointed out that implicit payment guarantees cause double moral harm not only to public enterprises but also to the government.
In case of emergency, if the government’s bailout is almost certain, public enterprises do not have to strive to improve their financial soundness or profitability, and the government will allocate unreasonable projects.
In this regard, the report suggested that all construction bonds should be included in state guarantee obligations in principle and subject to formal management, and that capital restrictions at least comparable to banks should be applied.
In addition, the principal and interest are paid like ordinary bonds, but when the financial condition of the issuing institution is seriously deteriorated, the bond is converted to the institution’s capital or the obligation to pay principal and interest is extinguished. ) It added that it is necessary to consider introducing bonds to public enterprises.
However, there is also a view that it is inappropriate for academia to compare the share of debts of public institutions to GDP between countries.
The larger the function of public institutions in the national economy, the larger the size of the debts of public institutions appear, because this level is determined by each country.
In the case of Korea, it is a phenomenon that occurs because public institutions are in charge of a wider range of areas such as energy, railroads, and medical care.
In addition, it is pointed out that most of the debts of public institutions have corresponding assets and capital, and that the government is constantly managing the financial soundness of public institutions.
/yunhap news