[EDITORIALS]The Problem of Repaying Old Debts

Controversy has begun to emerge surrounding the issue of how to repay the snowballing public funds or debts that the government raised during the 1997-1998 economic crisis to fix Korea's crumbling financial system. It began with the row between Deputy Prime Minister Jin Nyum and opposition lawmakers Monday night during the parliamentary inspection of the Ministry of Finance and Economy. It seemed like a mere war of words. But behind the volley of words lay a war of nerves between the administration and the opposition parties.

When the government published a white paper on the bailout funds early this month, it revealed a plan to issue government-guaranteed bonds to refinance maturing debts in a bid to postpone the repayment of the funds.

Two restructuring agencies that issued bonds to raise the funds - the Korea Deposit Insurance Corp. and the Korea Asset Management Corp. - do not have enough cash to repay maturing debts because of the slow recovery of the money that has been used.

Therefore, the government has no choice but to refinance the bonds coming due by issuing state-guaranteed bonds in order to prevent those two organizations from going bankrupt.

The government believes that it has to extend maturities of about half of the total amount of bailout funds by more than 10 years under the debt refinancing scheme.

The refinancing seems inevitable, considering the reality of the public fund and the cost of overcoming the economic fiasco. So far, a total of 137 trillion won ($105.7 billion) has been used to recapitalize shaky financial institutions or buy distressed assets from them. Of the amount, the government retrieved just 34.2 trillion won, or 24.9 percent, of the money as of the end of June.

By contrast, 5.6 trillion won of debts will become mature by the end of next year, followed by 21.9 trillion won due in 2003. Then, debt of 16 to 18 trillion won will become mature every year until 2006. Simply, there is no way of meeting the payment deadlines.

However, even if we admit such reality, there are some issues that need to be raised. For starters, the government has violated the principle of raising and repaying the bailout funds. During the process of raising and appropriating the restructuring funds, the administration has clearly stressed that the Korea Deposit Insurance Corp. and the Korea Asset Management Corp., as the issuers and spenders of funds, would repay the debts with money they recover.

It also emphasized that the government simply provided payment guarantees and therefore, the bailout funds did not fall into the category of national debts or direct debt but incidental debt because it would have the obligation to repay the money if the issuers of the bonds suddenly went bankrupt.

Now that the government plans to guarantee debts for the refinancing of maturing bonds, it has failed to hold on to the principle. Therefore, Seoul should find out the reasons and seek for approval from the National Assembly on a new repayment plan for the funds. A bigger problem is that the refinancing plan would not help the government recover the public funds. The government should consider converting some of the refinanced bonds into state debts. Then, those debts would require parliamentary approval and inspections and thus would force those agencies to try as hard as they can to recover the funds. It should also take advantage of the falling interest rates so that it can float state debts at more favorable terms and reduce the repayment period.