Updated February. 15, 2014 07:28
President Park Geun-hye instructed on Friday to set caps on debt guarantee for respective local governments and manage accordingly, and prepare thorough control measures on the way (certain local government-run companies) liquidize assets.
At a briefing on new years work plans in the law and order and safety field by the Justice Ministry, the Security and Public Administration Ministry, the Food and Drug Safety Ministry, and the Nuclear Safety and Security Commission on the day, Park made the remarks, saying that Local governments lavish fiscal management is posing major burden on the nation.
Currently, the Security and Public Administration Ministry defines and manages the cap on amount of bonds issued by respective local governments, Park said, adding, To dodge such a cap, some local governments are giving debt guarantees on loans made to private companies in order to push for extravagant development projects. She went on to say that Certain local government-run companies issue commercial promissory notes through the method of liquidizing assets in order to dodge the Security and Public Administrations approval on issuance of state-run company bonds. The total value of debt guarantees extended by local governments amounted to 5 trillion won (4.72 billion U.S. dollars) as of end-2012, and the value of promissory notes issued by local government-run companies through the method of liquidizing assets amounted to nearly 1 trillion won (940 million dollars).
Parks statement complies with the "local government bankruptcy system," which the Security and Public Administration Ministry is set to introduce this year. The local government bankruptcy system is a program through which a higher level government or the central government interferes with a local government that cannot afford to overcome a fiscal crisis due to delinquency of debts to revive the latters fiscal finance. As local governments finance situation has extremely deteriorated, with the combined value of local government debts amounting to 100 trillion won (94 billion dollars), introduction of the local government bankruptcy system is inevitable, according to the central government.
On reform of the public sector, President Park said on the day, The government should sternly deal with illegal collective actions aimed at protecting privilege, and step up efforts to lay the institutional foundation to correct abnormalities, adding, Practical change should be made starting with organizations that account for more than 80 percent of state-run companies debts.
On a recent modern slavery case in which disabled people were taken to salt fields in an isolated island and forced to labor as if slaves, Park said, There is saying that reality is more unbelievable than fiction, and who on earth would have thought something like this would happen?, adding, Such practice should be completely rooted out to prevent recurrence.