Deficit disaster brewingSeoul has unveiled a host of new austerity measures in a bid to tackle its mounting debt, including a plan to re-examine construction developments with an eye on axing those that aren’t deemed vital.
First on the chopping block are secondary road repair projects. The city will also shelve plans to create a boat lane on the Anyang River and a tunnel between Sillim-dong and Bongcheon-dong. Additionally, it will adjust the timetable and scope of large land development projects.
The city has decided that it could be headed toward insolvency if it keeps up its borrowing spree.
Seoul’s debt reached 3.25 trillion won ($2.76 billion) last year, while organizations that fall under its umbrella racked up another 16 trillion won ($13.6 billion) in debt. The city might be in a better state than other local governments, but it still may end up issuing debt to pay off its current bills if it doesn’t shape up fast.
The red ink is mainly tied to the city’s efforts to enhance its aesthetics. It spent 630 billion won to give the Han River a makeover and 1.3 trillion won on a new shopping mall dubbed Garden 5, among other developments. These projects alone added 1.39 trillion won to the city’s debt last year.
Local governments are even worse when it comes to reckless spending. They have foolhardily pumped untold amounts of borrowed money into modernizing and redesigning their cities and building luxurious city halls.
The bills, however, are being sent to the central government and taxpayers. Numerous cities have had to issue bonds to simply pay the monthly salaries of their employees. Yet local governments hosted 937 festivals and events this year. These events mostly served as venues to hype the accomplishments of governors and mayors. Local government budgets were used as personal piggy banks to feed officials’ aspirations for the next election.
The nation’s local governments now find themselves in a deep pit of debt. The balance of bonds issued by local governments exceeds 25 trillion won, and the organizations these governments oversee are saddled with a combined debt of 50 trillion won.
The country is rife with examples of poor planning, like the 14 billion won Demilitarized Zone Museum in Goseong, Gangwon, which brought in little revenue last year.
Seoul, which has a 21 trillion won budget, must have seen some strong warning signs about the health of its finances if it declared that it is time to go on a serious diet. This should serve as a wake-up call to other local governments that are in a far worse state.