No more mollycoddling citiesIncheon and Taebaek, Gangwon, are expected to be put on a watch list of cities that require debt restructuring as they have become financially incapable of paying off their loans using taxes and other revenue streams at their disposal. It is nothing short of shocking to see these municipalities in such straits given the various benefits and patronage they have enjoyed at the hands of the central government.
Since 2000, Taebaek has been operating the only casino in the country that admits Koreans. It was issued the license for the casino to help restore the local economy after the region’s lucrative mining industry collapsed. This has generated a veritable windfall for the city as it receives 17 billion won ($14.4 million) in taxes from the casino each year. Furthermore, the central government awarded Taebaek 100 billion won in public compensation subsidies to make up for the loss of its pillar mining district. So why could the municipality not balance its books?
It has hit hard times due to a number of reckless development projects. For example, the Taebaek Tourism Development Corporation poured 440.3 billion won into creating a ski and golf resort on a 479,900-square-meter plot of land, but the resort is now struggling to repay daily interest on the loan of 23 million won. It also cannot afford to pay monthly salaries to its staff members and has also been overdue on utility and food bills.
Incheon has been equally reckless in terms of financial governance. The central government has licensed three economic zones in the city with various tax benefits, but local authorities pursued overpriced business projects without properly studying their feasibility. One of these, a 110 billion won monorail, now stands rusted due to low usage.
Meanwhile, the city needs 3 trillion won to host the Asian Games in 2014, but somehow found the means - and generosity of spirit - to pledge $20 million in support of impoverished countries while campaigning to host the event.
As local and regional governments around the world collapse, like the bankrupt Japanese city of Yubari, or teeter on the brink, which is the case for 100 state governments in the U.S., new measures need to be implemented. Korea need to employ a bankruptcy program for local governments while respecting their sovereignty in financial governance, similar to the U.S. and Japan. The government must seek reparations for the loss of its subsidies. With government debt on the rise, we can no longer afford to support debt-ridden local governments.