“The party is over,” said Deputy Prime Minister and Minister of Strategy and Finance Hyun Oh-seok on November 14. He was referring to debts owed by public corporations. The reason for his remarks lies in his intention to reform the public sector.
Last year, the IMF published international guidelines on the compilation of public sector debt, called Public Sector Debt Statistics: Guide for Compilers and Users. Countries are advised to include public corporations in national debt statistics. Since Korea is ridden with public sector debt, the government urgently needs to address the problem.
In 2008, debts incurred by state-owned companies amounted to 290 trillion won (US$272 billion), but grew by 493.4 trillion won (US$463.9 billion) last year. As of December 31, 2012, public sector debt far exceeded the 443.1 trillion won (US$416.7 billion) of national debt (including local governments). If debts owned by local public companies (52.4 trillion won, US$49.3 billion) are included, Korea’s debt-to-GDP ratio was 77.7% last year.
According to Rep. Lee Yong-seop of the main opposition Democratic Party, this year’s public sector debt is expected to reach 1,053 trillion won (US$990 billion), including 480 trillion won (US$451 billion) in national debt (state and local governments included), 520.3 trillion won (US$489.3 billion) in public corporation debt (estimated by the Ministry of Strategy and Finance), and 52.4 trillion won (US$49.3 billion) in local public company debt (based on 2012 data). Assuming that the annual growth rate in 2013 is 4.3%, the nation’s debt-to-GDP ratio is 79.3% this year.
Kim Young-shin, a researcher at the Korea Economic Research Institute, commented on the rising debt by saying, “Public corporations’ debt should be included in the calculation of national debt. In that case, Korea’s sovereign credit rating can be lowered, but transparency in state-owned enterprises will be higher.”