Clearing up debt pictureThe government recently hosted a public hearing on its proposal to revise how it compiles financial statistics. It has been calculating such data using guidelines outlined in a 1986 manual by the International Monetary Fund, but officials now want to incorporate the 2001 edition.
If the government adopts the proposal, it will have to record the value of its accounts on an accrual basis rather than use a cash-based system. It will also have to include nonmonetary transactions. The goal of the changes is to make public financial statistics clearer and more credible.
The change would go a long way to improving transparency, but concerns center on the fact that the government won’t reflect major sources of debt such as state pension allowances.
The government and economists differ in their estimates for the size of debt. The main reason is the unknown levels of debt held by public entities. The government claims that the country’s debt is 359.6 trillion won (322.9 billion), taking up 35.6 percent of the gross domestic product, which is safely below the average debt-to-GDP level of 53.4 percent among members of the Organization for Economic Cooperation and Development.
Economists argue that the debt figure is as high as 1,637 trillion won - a very dangerous level.
The new guidelines could narrow the gap between these estimates by redefining public-sector debt. However, the government would still leave out most of the debt tied to public giants like the Korea Land and Housing Corp. (LH) and Korea Water Resources Corp. A true picture of public debt can’t be created without incorporating the liabilities of these huge companies.
The National Assembly last month passed a bill to inject state funds into helping financially stricken LH. Its debt, therefore, falls under the state. The government argues that it has followed international guidelines in categorizing the state-invested land development company’s liabilities. But few public entities in advanced economies take as big of a share in state infrastructure projects.
The government claims it will keep a close eye on the liabilities of other public entities separately. But that is not enough. It should at least include major state companies when releasing national debt level. It’s important to know the true state of our debt levels so that we can effectively determine how to approach the situation. Covering it up won’t do anyone any good.