The government is rolling up its sleeves to reform state-run corporations as their lax management despite excessive indebtedness is causing public anger.
In her budget speech at the National Assembly on Monday, President Park Geun-hye pledged to reform the public sector. Referring to the glaring instances of managerial laxity at public agencies exposed during the parliamentary audit period, Park said the government would ensure that such practices are not repeated.
She also said the government would bring public institutions under constant pressure for reform by making it mandatory for them to disclose all management information, including debt, compensation and welfare benefits.
Last week, Finance Minister Hyun Oh-seok called together heads of the 20 state organizations that stood out in terms of either indebtedness or employee welfare liabilities, urging them to cut debt and address welfare excesses.
Declaring that “the party is over,” Hyun said the government would look into every managerial aspect of public corporations to draft a comprehensive plan to reduce their debt and correct unreasonable practices.
The government’s resolve to reform public organizations is welcome. Yet whether its reform campaign will be any different from those of the previous governments remains to be seen.
Many of the problems plaguing public corporations are not of their own making; the central government has played a significant role in creating them. This means successful reform of these organizations depends on whether the government is ready to jettison its own old practices.
Take the widely reported debt problem of public agencies for instance. The aggregate debt of the 295 public agencies affiliated with the central government is expected to top 520 trillion won in December, even larger than the central and local governments’ combined debt of 480 trillion won. Credit rating agencies say that Korea’s sovereign rating is affected by the debt bomb hanging over these public organizations.
Yet the debt overhang at these institutions is attributable largely to the central government. For instance, LH Corp., which has 141 trillion won in liabilities, incurred huge debts in the process of building housing for the homeless.
The preceding Roh Moo-hyun and Lee Myung-bak governments had the corporation build hundreds of thousands of rental homes, with each new home adding 67 million won to its debt mountain.
Likewise, Korea Water Resources Corp. saw its debt surge due to Lee’s signature project to restore four major rivers.
So the first step toward curbing state agencies’ ballooning debt is for the government to abandon the practice of having them foot the bill for state projects.
It also needs to stop appointing unqualified politicians or government officials as CEOs of public corporations if it wants to remove their managerial inefficiencies and excessive welfare benefits.
Political appointees generally face strong resistance from the trade unions of the corporations they were named to lead. To overcome opposition, they tend to enter into secret deals with the unions on welfare expansion.
Thus, to make public organizations lean and efficient, it is necessary to appoint the right figures as their CEOs. It is also necessary to step up oversight of their investment decisions to prevent them from throwing good money after bad. The preceding government exempted many projects from feasibility studies. Such reckless practices should be discontinued.
