People find it difficult to sleep these days, as the temperatures refuse to fall in the evening after the scorching daytime heat. These tropical nights are nondiscriminatory.
Still, some might sleep more easily than others. Seoul Mayor Park Won-soon recently said to senior officials of the metropolis and metropolis-invested corporations: “The daily debt interest payments alone amount to 2.1 billion won. How does sleep come easy to you?”
He made the remarks at a brainstorming session on debt, to which he had summoned 100 top officials of the city government, Seoul Metro, SH Corp. and other city-owned corporations.
The mayor could have patted the officials on the back because their efforts to reduce debt outperformed the target. But he didn’t. Instead, he chose to continue to prod them to tighten their belts. He exhorted them to “reduce, take, earn, sell and delay” ― cut expenses, take subsidies from the central government, make projects profitable, unload properties and postpone projects wherever possible.
When Park took office in October last year, he aimed at reducing the debt by 700 billion won in a year. One of the first tasks he demanded of the metropolitan administration and its corporations was a 10 percent across-the-board cut in expenses. He also demanded greater self-reliance from Seoul Metro and the homebuilder-turned-land developer SH Corp.
His relentless efforts paid off when the debt was reduced by 1,214.2 billion won ($1.06 billion) in less than a year ― from 19,787.3 billion won in October 2011 to 18,773.1 billion won at the end of June.
Apparently encouraged by the outstanding performance, the Seoul metropolitan administration has more than doubled its 2013 debt-reduction target ― from 1,371.6 billion won to 3,728.5 billion won. Should the target be attained, Mayor Park would find it much easier to make good on his election promise to cut the debt by 7 trillion won by 2014.
However, the planned amortization may prove to be easier said than done, given the prolonged slump the nation is now going through. One obstacle is the slow sale of residential plots, which many suspect will continue into next year. The revenues from the sales during the first half of this year amounted to 620 billion won, a mere 21 percent of this year’s target.
Still, few would attempt to belittle what Mayor Park has so far achieved. He deserves distinction from other metropolitan mayors, who have yet to make good on their election promises to rein in snowballing debt.
Among them is Song Young-gil, who was elected to the post of Incheon mayor in June 2010 on a pledge to put fiscal soundness before anything else. The amounts of money owed by his metropolitan administration and its corporations, which stood at 2.5 trillion won and 4.5 trillion won, respectively, in 2010, have now ballooned to 2.7 trillion won and 10 trillion won.
The surge in debt should be mortifying to Mayor Song. His administration’s fiscal situation was so bad in April this year that it had to delay part of its employees’ salaries.
This is not to say that Mayor Song alone must be held accountable for the debt upsurge. On the contrary, much of the blame lies with his predecessor, who paid little attention to profitability in launching multiyear, big-ticket projects. Among them was the 1,519 billion won project to host the 2014 Asian Games.
The high debt level of Incheon Development and Tourism Corp. is another problem. The Board of Audit and Inspection said last year that the city-owned corporation would find it hard to manage its debt if it exceeded the 5.55 trillion won mark. But it already owes 9 trillion won.
The Incheon metropolitan administration needs to cut its debt levels on its own, as the Seoul metropolitan administration has successfully done. But hindsight shows that Seoul and Incheon would have had healthier finances if they had been held more accountable for their budgetary allocation and spending.
One proposal from the Korea Institute of Local Finance in this regard is to revise relevant laws to put the entire local budgetary process, from budget-bill writing to actual spending, under stricter public scrutiny. This merits serious consideration by the central government and the National Assembly.
